Experience in Financing Private Equity Funds in

Central and Eastern Europe: Case Studies

Kanako Sekine Director, Equity Funds

Alessandra PasianPrincipal Banker, Equity Funds

What is the EBRD?What is the EBRD?

AAA-rated international financial institution founded in 1991, owned by 60 national and 2 supranational shareholders

EBRD promotes transition to market economies in 27 countries from central Europe to central Asia

The largest lender and private equity investor in this Region

Shareholding of the EBRDShareholding of the EBRD

USA 10.1%

Others 11.3%

Japan 8.6% EBRD region 8.5%

excl EU members

EU [25] countries 61.5%

What are the EBRDWhat are the EBRD’’s objectives?s objectives?

To promote transition to market economies by investing mainly in the private sector

To mobilise significant foreign direct investment

To support privatisation, restructuring and better municipal services to improve people’s lives

To encourage environmentally sound and sustainable development

A unique profileA unique profile

Versatile financial instruments: providing debt, equity and guarantees

Risk appetite: extending the financial capabilities of the private sector by mitigating political risks

Legal know-how: in-depth knowledge of the region’s legal systems and experience in resolving problems

Committed and growingCommitted and growing

048

121620242832

'98 '99 '00 '01 '02 '03 '04 '05 '06

Regional focus: supporting investors and local companies in 27 countries of CEE and CIS

Asset base: over 1500 transactions worth €30 billion signed since 1991

Capital base: €20 billion dedicated exclusively to this RegionCumulative commitments

€30.5 billionJune 2006

Active in all countries of operationsActive in all countries of operations

Russia & Central Asia

30.7%

SE Europe & Caucasus 34.3%

Central Europe 34.9%

Cumulative commitments €30.5 billion

June 2006

EBRD portfolio by sectorEBRD portfolio by sector

Financial Institutions 31.6%

General Industry 12.5%

Agribusiness 8.4%Natural

Resources 6.6%

Property & Tourism

3.4%Telecoms

7.4%

Energy Efficiency

0.2%

MEI 7.2%

Power & Energy 8.2%

Transport 14.4%

June 2006

EBRD portfolio by facility typeEBRD portfolio by facility type

State loans 24%

Direct equity 8%Guarantees,

etc 2%

Private loans 40%

Financial intermediaries

17%June 2006

Other participating interest 9%

PRIVATE EQUITY OVERVIEW

EUROPE OVERVIEW EUROPE OVERVIEW EVOLUTION ACTIVITY FLOWSEVOLUTION ACTIVITY FLOWS

Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA

01020304050

60708090

100

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Preliminary

€ bill ion

Funds Raised

Investments

Divestments

EUROPE OVERVIEWEUROPE OVERVIEWINVESTED AMOUNTINVESTED AMOUNT

Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA

0

10

20

30

40

50

60

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Preliminary

€ bill ion

Buyout andReplacement Capital

Venture Capital

EUROPE OVERVIEWEUROPE OVERVIEWAMOUNT RAISED*AMOUNT RAISED*

Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA and EVCA

*Graph excludes non*Graph excludes non--classified amountsclassified amounts

0

10

20

30

40

50

60

70

80

90

100

1998 1999 2000 2001 2002 2003 2004 2005 2006Preliminary

€ billion

Buyout

Venture Capital

EBRD’s portfolio of funds:Investment in 99 funds63 fund managersUSD 2.3 billion in commitments (Eur 2.0 bn) 851 underlying investments; 537 exited*

Largest funds investment program dedicated to the regionHelped to create new funds and secure TC funds when necessary

EBRD in Private EquityEBRD in Private Equity

Note: excludes real estate funds*Gross / company level data is to end 2005 (otherwise, data on this slide is December 2006 data)

2

Estimated Size of Private Equity MarketEstimated Size of Private Equity Market

0

5

10

15

20

25

EBRD committed (USD) Other parties committed

Including Non-EBRD Funds

Estimated Capital

Plus 20% & EBRD Direct= Estimated Total

Private Equity Market

USD

Bill

ion

EBRD committedOther parties committedIncluding Non EBRD funds estimated capitalPlus 20% & EBRD Direct= Estimated total PE Market

5

Note: CSE and CIS, end 2005 data

Scale of Private EquityScale of Private Equity

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

Denmark

Sweden UK

Netherl

ands

Finland

SpainFran

ceEU -1

5Switz

erlan

dGerm

any

Norway

Greece Italy

Portugal

HungaryBelg

ium

Czech

Rep

ublicRoman

iaAustr

iaIre

land

Baltics

Russia

Slovakia

Poland

Croati

a& Slove

nia

PE in

vest

men

t as

% o

f GD

P*

Source: EVCA/Thompson Financial , EBRD estimates. 2005 data.

23

EBRD Commitments Over TimeEBRD Commitments Over Time

Seven funds signed in 2006 for USD 254 million

Note: CSE and CIS, excludes property funds

50

100

150

200

250

300

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

USD

Mill

ion

Russia/CIS Privately SponsoredRussia/CIS Donor / EBRD-SponsoredCEE/SEE Privately Sponsored

CEE/SEE Donor / EBRD-Sponsored

0

6

Vintage Year

Investors by Type by Region: Investors by Type by Region: 2004 and 20052004 and 2005

Note: Includes EBRD (in IFI / Govt)

8

0

100

200

300

400

500

600

700

Banks CorporateInvestors

Fund ofFunds

IFI andGovt

InsuranceCo.

Others PensionFunds

Private

Tran

sact

ion

amou

nt (U

SD M

illio

n)

CSE Funds

Russia/CIS Funds

2005 Investment Stage vs EVCA2005 Investment Stage vs EVCA

11

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EVCA CSE (EBRD) CIS (EBRD)

Other

Seed/Early Stage

Expansion

Sec. Purchase / Buyout

Note: by investment cost of investments made in 2005

2005 Investment Sectors vs EVCA2005 Investment Sectors vs EVCA

12

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EVCA CSE (EBRD) CIS (EBRD)

Agriculture & ForestryConstructionPrimary & EnergyPharmaceutical & MedicalManufacturingServicesTIMConsumer/Retail

Note: by investment cost of investments made in 2005

EBRD Horizon Returns: All FundsEBRD Horizon Returns: All Funds

N/A21.1%27.2%49.7%77.0%FTSE Emerging Markets Eastern Europe**

10.3%11.4%2.0%6.3%33.8%EVCA, All Private Equity

10.8%11.6%13.5%31.4%82.6%EBRD Private Equity Portfolio* EUR

N/A4.1%5.0%19.2%21.9%Cambridge Emerging Markets

Venture Capital & Private Equity Index

4.2%3.8%1.3%12.9%6.3%S&P 500**

12.2%13.2%20.1%38.7%58.5%EBRD Private Equity Portfolio*USD

SinceInception

TenYears

FiveYears

ThreeYears

OneYear

Returns as at December 31 2005

Source: Cambridge Associates, EVCA, Bloomberg and EBRD* EBRD portfolio pooled end-to-end return, net of fees, expenses, and carried interest. Excludes property funds, and includes liquidated partnerships.

** Calculated assuming the same investment (cash flow) pattern of EBRD’s portfolio of private equity funds since the relevant horizon

6

CASE STUDIES

Case Study ICase Study ISponsored Fund: Romanian Post Privatization FundSponsored Fund: Romanian Post Privatization Fund

VINTAGE: 1996VINTAGE: 1996

FUND SIZE: EUR 44,000,000FUND SIZE: EUR 44,000,000

TC FUNDS: EUR 10,000,000TC FUNDS: EUR 10,000,000

INVESTORS: EBRD (57%), EU (34%), GP (9%)INVESTORS: EBRD (57%), EU (34%), GP (9%)

FUND STRATEGY: SMEs located in RomaniaFUND STRATEGY: SMEs located in Romania

Case Study ICase Study ISponsored Fund: Romanian Post Privatization FundSponsored Fund: Romanian Post Privatization Fund

INVESTED AMOUNT: EUR 38,200,000 INVESTED AMOUNT: EUR 38,200,000

TC FUNDS USED: EUR 9,500,000TC FUNDS USED: EUR 9,500,000

–– Management Fees: EUR 4,000,000 Management Fees: EUR 4,000,000 –– Consultants: EUR 5,500,0000Consultants: EUR 5,500,0000

NO OF INVESTEE COMPANIES: 12NO OF INVESTEE COMPANIES: 12

Case Study ICase Study ISponsored Fund: Romanian Post Privatization FundSponsored Fund: Romanian Post Privatization Fund

TC IMPACT ON FUND RETURNS:TC IMPACT ON FUND RETURNS:

-- GROSS IRR: 21%GROSS IRR: 21%

-- NET IRR (of TC): 12%NET IRR (of TC): 12%

Case Study ICase Study ISponsored Fund: Romanian Post Privatization FundSponsored Fund: Romanian Post Privatization Fund

LESSON LEARNED:LESSON LEARNED:

Identify fund managers locally based with track Identify fund managers locally based with track record and sufficient resources to promote record and sufficient resources to promote management supportmanagement supportInvestment strategies to reflect the realities of the Investment strategies to reflect the realities of the market market TC funds locked for longTC funds locked for long--term projects term projects Returns on equity funds on a full cost basis (net Returns on equity funds on a full cost basis (net of TC) of TC) Active participation by EBRDActive participation by EBRD

Case Study IICase Study IIFollowFollow--on Fund: GED Eastern Fund IIon Fund: GED Eastern Fund II

VINTAGE: 2006VINTAGE: 2006

FUND SIZE: EUR 150,000,000FUND SIZE: EUR 150,000,000

TC FUNDS: noneTC FUNDS: none

SPONSORS: 3 international institutions SPONSORS: 3 international institutions

INVESTORS: more than 30 international investorsINVESTORS: more than 30 international investors

Case Study IICase Study IIFollowFollow--on Fund: GED Eastern Fund IIon Fund: GED Eastern Fund II

COMMITTED AMOUNT: EUR 17,000,000 COMMITTED AMOUNT: EUR 17,000,000

NO OF INVESTEE COMPANIES: 3 during NO OF INVESTEE COMPANIES: 3 during first year of activityfirst year of activity

Case Study IICase Study IIFollowFollow--on Fund: GED Eastern Fund IIon Fund: GED Eastern Fund II

FUND STRATEGY: SMEs located in FUND STRATEGY: SMEs located in Romania and BulgariaRomania and Bulgaria

LOCAL PRESENCE: 2 offices (Bucharest LOCAL PRESENCE: 2 offices (Bucharest and Sofia) with 11 professionalsand Sofia) with 11 professionals

Copyright 2007 EBRD. All Rights Copyright 2007 EBRD. All Rights ReservedReservedThis material is for the recipient’s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2007 European

Bank for Reconstruction and Development. All rights reserved.