RUSSIA'S BARING VOSTOK CAPITAL PARTNERS RAISES $1 BLN PRIVATE EQUITY FUND, E.EUROPE'S LARGEST
By Douglas Busvine
Russian private equity partnership Baring Vostok Capital Partners has raised a new $1 billion fund, the largest of its kind in eastern Europe, Co-Managing Partner Michael Calvey told Reuters on Wednesday.
BV's fourth fund is two-and-a-half times bigger than its third, launched in 2005, demonstrating the appeal of Russia's booming economy despite the country's often poor image abroad.
"There has always been a disconnect between the newspaper headlines about Russia, which are mostly about political issues, and the actual results of investment, which have been very strong for six or seven years now," Calvey said in an interview.
"The weight of the returns has caused people to step up and pay attention to Russia in a way that they didn't before."
Calvey moved to Russia in 1994 after working at the European Bank for Reconstruction and Development and Salomon Brothers. He set up the first fund managed by BVCP, which was wound up after returning four times its original $160 million investment.
Its second fund still owns stakes in around 10 companies, including entertainment TV network CTC Media , BVCP's most successful investment.
BVPEF bought into CTC Media in 2001 -- when it was barely breaking even -- convinced advertising revenues would grow. Shareholders, also including Alfa Capital and Sweden's Modern Times Group , hired a new CEO who helped double viewer ratings.
Last year, BVPEF sold some of its shares when CTC floated on the U.S. Nasdaq exchange. It sold another 6 percent this month, turning a 40-fold profit on its original investment.
"When you have an investment that makes that kind of a change you always have a receptiveness to consider taking some profits," said Calvey. "But ... we believe the company can and will grow substantially over the next two or three years. That's why we have retained a $100 million position in CTC."
Those profits compensate for a difficult investment climate where business disputes are common and judicial redress patchy. The best way to counter those risks is to secure ownership control, said the American.
He is less concerned about political risk in Russia, predicting an orderly transition when voters elect a successor to President Vladimir Putin in March 2008.
"If you apply the Ronald Reagan test, which is to ask people 'are you better off today than you were seven years ago?', 90-plus percent of the people in Russia would have to say yes," he said. "In that sense Putin has been a great success."
MID-SIZED FOCUS
Demand from European and North American institutions for the new fund totalled $2 billion, but BVCP capped its size at half that level to focus on mid-sized growth targets, said Calvey.
The fund will look at companies with annual turnover of $20 million to $200 million. It will make around five investments a year of anything between $40 million and $100 million, drawing down its capital in the process.
"It's not unusual to find companies in this segment growing by 50 percent a year. So over three, four or five years, companies can grow by three or four times in size," he said.
BVCP specialises in "impact" investments, where it deploys its capital and strategic nous to fix struggling firms, and early-stage firms that address large new market opportunities.
Its most successful early-stage bet was on Internet search engine Yandex. BVPEF, with partners, took control in 2000, when Yandex had just $72,000 in revenues and lost $2 million.
Yandex has held on to its lead in Russian Internet search over Google , one of whose founders, Sergey Brin, is Russian born. And the business is making money; core earnings reached nearly $50 million last year.
Time to sell out? Not just yet, said Calvey, who said a market float or trade sale were possible future exit options: "Yandex could become a much bigger company in terms of revenue and profitability over the next few years, especially with a fantastic management team and dominant market share," he said.
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