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PRIVATE EQUITY

Investors look east

PRIVATE equity companies are eyeing eastern markets and have marked Ukraine and Russia on their investment maps, if the recent plans of three market players are any sign of a trend.

PRIVATE equity companies are eyeing eastern markets and have marked Ukraine and Russia on their investment maps, if the recent plans of three market players are any sign of a trend.

Slovak private equity groups could be at a competitive advantage for entering those markets due to their knowledge of local conditions and experience with a post-communist economy.

The areas that have been attracting interest in Russia and Ukraine vary widely: banking, retail, telecommunications, research and health care.

High economic growth is what’s broadening horizons for businesses and luring private equity players to eastern markets, Martin Danko, spokesman of private equity firm Penta Investments, told The Slovak Spectator.

According to Danko, the ability to understand the local conditions and adapt to them are the keys to success on these markets.

Penta considers retail, air transportation, health care and real estate the most interesting segments for future investments, Danko added.

Through its portfolio company Alpha Medical, Penta has invested in laboratories in Ukraine that the company will start developing as green field investments, Danko said.

“While, in Russia, we have not yet signed an acquisition deal, we are negotiating the purchase of the Semya retail chain,” Danko said.

Another private equity player, the J&T Finance group, opened a branch of J&T Bank in Moscow in March 2008.

“Within three years we would like to see this bank on the chart of the top 100 Russian banks, based on capital and assets,” Patrik Tkáč, founding partner of the J&T group, told the SITA newswire. “The growth of the banking business itself, as well as the positive dynamics of the Russian market’s development should contribute to this goal.”

Just as its branches in the Czech Republic, Slovakia and Switzerland, J&T Bank in Russia will focus on private and investment banking.

J&T was granted a banking license in the Russian Federation in April 2007 upon its purchase of a 100-percent stake in Tretij Rim bank, which it added to the J&T group. In mid-February 2008, the Russian central bank issued a new license for J&T Bank, which has become the company’s base of operations for entering the Russian market, according to SITA.

Private equity group Arca Capital has also moved onto the market. Last January it purchased Ukrainian company CheZaRa, which produces communication and security systems for the national space programme and civil sector.

Arca Capital plans to restructure the company, make management more effective and strengthen research. The company also wants to aim production at the civil sector, the private equity group said.

“It is our first project in Ukraine that is focused on the complex restructuring of a company,” Rastislav Velič, financial manager of Arca Capital, told SITA. “We are aware that we face a demanding process.”

According to Arca Capital, it is partly the company’s core business of producing security systems that makes its restructuring complicated for a foreign investment group. Then, Arca Capital said, there is also the social aspect of the restructuring, because the majority of companies in Ukraine that had been integrated into the Soviet Union’s space programme were forced to close during the transformation to a free market.

The goal of the restructuring is to develop a modern and forward-looking company with a focus on electro-technology and the telecommunication industry, Velič told SITA.

The target markets should be countries of the former Soviet Union and Central Asia, he added.

Arca Capital already does business in Ukraine. Arca Capital owns a 40-percent share in the Kharkovmetrostroy construction firm, which has more than 1,000 employees and a contract to construct Kharkov’s new metro network.

Slavia Capital is also interested in investing in Russia and Ukraine, mainly in the energy sector and financial services, Trend wrote.

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