Russian M&A Review 2018

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Russian M&A review 2018

February 2019

KPMG in Russia and the CIS kpmg.ru 2 Russian M&A review 2018 Foreword

Welcome to the 14th edition of the annual KPMG Russian M&A Review. In the past year geopolitical uncertainty continued to adversely impact the aggregate value of Russian M&A, and stopped investors from making significant deals. However, we see the signs of M&A growth potential in the near future, due to the release of pent-up demand, which has been building ever since sanctions were imposed. The economic downturn observed during the recent years of sanctions has eased somewhat, and a stable positive trend in 2017–2018 indicated that the Russian economy has learned to adapt to the 2014 sanctions; as a result, investors are now more confident about planning deal activity in the coming year. However, there are still a Lydia Petrashova number of issues, that will impact headline activity and investor sentiment in 2019, including what happens next with the sanctions, the oil price trend, and other uncertainties. Head of Deal Advisory Russia and the CIS In this edition of the Russian M&A Review we reflect on key recent trends Partner and the effect that they will have on M&A processes in upcoming years. Our predictions are based on a thorough analysis of M&A market statistics as well as our diverse experience in supporting M&A deals and processes across the Russian market. In addition to a statistical analysis we as before share our thoughts on complex current issues, such as the restructuring of corporate debt by banks and the most prominent M&A trend (the one being seen in the Innovations & Technology sector). In addition, the Metals & Mining sector is showing increased activity and we also look at this theme in our review. We hope that you enjoy reading this year’s KPMG Russian M&A Review. We will be happy to answer any questions that you have. Lydia Petrashova

OVERVIEW 2018 IN REVIEW OUTLOOK FOR 2019

p. 4 p. 7 p. 10

KEY M&A ISSUES IN 2018 METHODOLOGY Russian Innovations & Technology 15 Debt restructuring transactions 19 Metals & Mining 23

p. 14 p. 27

APPENDICES Macro trends and medium term forecasts 29 Appetite and capacity for M&A 30 Cross-border M&A highlights 31 Sector highlights 32 p. 28

Overview

USD51.7bln –7 %

The value of M&A deals recorded in 2018 stood at USD51.7 billion, down 7% on the figure for 2017, mainly due to an absence of larger deals.

owever, there was a notable Russian M&A (2012–2018) increase in the number of 652 deals, from 552 to 652 separate 621 transactions. The highest Hgrowth in deal activity was recorded in the 552 Innovations & Technology sector, which in 2018 demonstrated a threefold year-on- 56.0 14.4 482 year increase to 113 deals. We will cover 470 this later in our review.

This shows that, while large 333 investment deals have been 334 11.3 affected by uncertainty created by the sanctions and global events, as well 100.9 as waiting for greater 79.5 79.0 64.8 clarity on the government’s 55.3 52.0 51.7 plans for digitalisation and national projects, there is steady progress in terms of diversification 2012 2013 2014 2015 2016 2017 2018 and the emergence of new economic sectors. Deal value (excl. mega Mega deals (>USD10 bn), Number of deals deals), USDbn USDbn Source: KPMG analysis

2018 can best be described as a year of consolidation in the Russian economy, as reflected by a number of large share buy-backs in the top However, the most important 10 M&A deals of the year1. Such deals amounted to 15% of the total takeaway from the results of the past deal value in 2018 (compared to just year is that after several years of oil above 1% in 2017). The available indicators point to GDP expansion of revenue recovery and a conservative around 1.6% for the year, or almost similar to the growth recorded fiscal policy, Russia is now much less in 2017. This indicates that the dependent on foreign inflows to advance economy has adjusted to the 2014 round of US and EU sanctions and its investment programme. to the lower average oil price, and is now more exposed to domestic drivers. As for the outlook for 2019, there events in the global economy such as are still a number of uncertainties whether there is an escalation in the that can impact headline activity and trade war between the US and China, 1 Lukoil announced a buy-back on the macro trends in the economy, as the fallout from Brexit in Europe, and open market of its common shares and well as investor sentiment. These what effect the US Federal Reserve depository receipts for an aggregate amount of up to USD3 billion; the Rosneft include what happens next with Bank’s policies will have on the US board of directors approved a share the sanctions, the oil price trend, dollar and global capital flows. buy-back of up to 3.2% of the company’s shares, for USD2 billion; MegaFon repurchased its own shares, representing in total 18.6% of its share capital, for USD1.12 billion.

Russian M&A largest deals in 2018 % Value Target Sector Acquirer Vendor acquired USDm Qatar Investment 1 Rosneft Oil & Gas Glencore 9.18% 4,427 Authority

2 LUKOIL Oil & Gas LUKOIL Minority shareholders 5.2% 3,000

3 Arctic LNG 2 Oil & Gas Total SA Novatek 10.0% 2,550

Sergey Galitskiy 4 Magnit PJSC Consumer Markets VTB Bank 29.1% 2,442 (private investor)

5 Rosneft Oil & Gas Rosneft Minority shareholders 3.2% 2,000

Banking & Deposit Insurance 6 Promsvyazbank* Private shareholders 99.9% 1,967 Insurance Agency (DIA)

7 Donskoy Tabak Consumer Markets Japan Tobacco Inc. Agrocom Group 100.0% 1,582

Vladimir Kremer OC Oerlikon Innovations & (private Iivestor); Renova Group of 8 23.1% 1,324 Management Technology Evgeny Olkhovik Companies (private investor) Communications 9 MegaFon MegaFon Minority shareholders 18.6% 1,124 & Media

MegaFon; Mail.ru Innovations & 10 AliExpress Russia Group; Russian Direct Alibaba Group 52.0% 1,053 Technology Investment Fund

largest as a % of total deals transactions in 10 in period USD21.47bln 41.5% 2018

* The transaction is part of insolvency proceedings being undergone by Promsvyazbank.

owever, 2018 was also a The future shape and impact of the year when a number of sanctions is always hard to predict; The key levers issues, which will affect too many factors and personalities the future direction of the are involved. What we can say is of growth in the Heconomy as well as opportunities that Russia has quite successfully for investors, came to the fore more adapted to the sectoral sanctions past year were a clearly but were not resolved. Hence imposed in 2014. Those forced the combination of higher 2018 could also be viewed as being a country to take serious measures, wait-and-see period for investors that such as devaluing the rouble and oil and gas output, tended to slow investment activity adopting the budget rule, and this and placed expansion plans on hold. helped provide a boost to some as the OPEC deal The two key issues for investors are sectors (such as agriculture and 1) clarity over the government’s plans domestic manufacturing) and ended, and increased for national projects (sometimes stabilise the economy. However, the referred to as the “May decrees”), escalation seen in 2018 has raised consumption. Retail and 2) what happens next vis-à-vis concerns among investors and led sales, for example, US sanctions and how it will affect many to delay spending decisions business in Russia. These two issues and expansion plans. expanded by 2.6% will likely have the greatest influence on the investment climate this year. year-on-year, as real wages grew by 7.5% and real disposable income increased by just above 1%.

The biggest reductions in values and resolving a number of existing were recorded in the banking, metals problems, including labour and skills and mining, and real estate sectors. shortages. The programme, which is However, as mentioned above, deal scheduled to be finalised in the first activity has grown, particularly in the quarter of this year, is expected to In 2018 only two Innovations & Technology sector, give a boost to investment activity which, we believe, indicates the future and set in motion the process that key industrial investment vector in Russia. will finally see Russia go from being a hydrocarbon and commodities The National Projects Strategy sectors saw year- dependent economy to one with Programme was announced directly much greater diversification and on-year growth after the presidential elections in less growth volatility. Digitalisation March, when Vladimir Putin set out and infrastructure improvements in the value of the priorities for his six-year term. The are expected to be among the most President tasked the government transactions: oil & important themes of the finalised with identifying key growth and programme. gas and consumer investment areas in order to modernise the economy, creating diversification markets. in relation to activity and exports,

Deal value by sector: Deal volume by sector: 2018 vs. 2017, USDbn 2018 vs. 2017 Oil & Gas 2018 2018 Consumer Markets Real Estate & Construction 3.2 32 1.5 61 Innovations & Technology 1.6 37 68 2.0 6.1 7.2 65 41 Metals & Mining 2.3 14.2 7 2.4 0.1 72 Banking & Insurance 2017 46 63 2017 4.0 5.2 Transport & Infrastructure 3.3 1.8 10 53 78 134 Communications & Media 9.1 7.5 58 4.9 Automotive 8.1 48 39 38 Agriculture 6.4 5.5 33 55 5.3 53 Other 5.3 113

Source: KPMG analysis

Russian M&A deal value by type (2012–2018), USDbn +23% 16.3 12.0 18.4 Overall economic 4.6 sustainability 7.9 13.8 21.5 resulted in a steady 107.3 92.2 10.9 15.3 11.4 5.2 14.0 5.1 4.1 rise in inbound 57.3 investment flows 36.0 39.3 38.7 33.7 (the value of such 2012 2013 2014 2015 2016 2017 2018 deals grew by 23% Domestic Outbound Inbound Source: KPMG analysis in 2018), particularly Russian M&A deal volume by type (2012–2018) from European and 87 Middle Eastern 71 72 countries, which 74 110 65 55 48 48 accounted for 58 42% and 35%, 73 63 493 respectively, of 48 41 476 347 379 394 the USD14 billion 213 229 in inbound M&A announced in 2018. 2012 2013 2014 2015 2016 2017 2018 Domestic Outbound Inbound Source: KPMG analysis

While this was chiefly driven by two large acquisitions in the oil & gas sector (a 9.18% stake in Rosneft by Qatar Investment Authority and a 10% stake in Arctic LNG 2 by Total SA), the number of inbound deals fell by 21% in 2018. The government focus on digitalisation led to greater interest on the part of Russian investors in foreign Innovations & Technology companies. Such deals amounted to 70% of total outbound M&A value in 2018, with the largest deals being led by the Russian private equity and venture capital company DST.

he position taken by the Russian GDP Government is that most events, that have an impact on headline activity and Headline growth is forecast to dip in the macro trends in the economy, are beyond first half of 2019 and may be just either Tits control, and it is therefore planning on moving side of 1.0% year-on-year compared to the forward with the National Projects Strategy same period in 2018. This is partially due Programme, while also maintaining a generally to the expected impact on consumption conservative fiscal and monetary policy stance. of a hike in the VAT rate on 1 January, from 18 to 20%. In the second half of last year, ahead of the VAT hike, there was a rise in consumption (especially of vehicles and durable goods), which will be After a number of years offset by a decline in the first half of 2019. Surveys also indicate that consumers are of oil revenue recovery and a generally fearful of inflation and economic conservative fiscal policy, Russia uncertainty, hence this too will negatively weigh on growth. Investment volumes is now much less dependent on will also likely remain low throughout the first half of the year, as companies and foreign inflows to advance its investors wait to see what happens with investment programme. the sanctions and for clarity vis-à-vis the National Projects Strategy Programme. There is expected to be a pick-up in the second half of the year, as investment into national projects begins and due to macro trends, such as inflation, being more settled. This should translate into growth during the year being slightly down on 2018, but at the same time the economy will be better positioned for more rapid expansion in 2020. Growth in and from 2020 is projected to be driven by a combination of investment spending and a recovery in manufacturing sectors (as localisation trends continue), in the agriculture sector (as current export bottlenecks in ports are resolved) and in consumption (as incomes grow in real terms, confidence picks up and concerns over issues such as pension reform fades).

Inflation Currency Headline inflation finished 2018 In 2018 the rouble lost 17.6% against at 4.3% year-on-year, and the Central the US dollar and 12.9% against Bank of Russia (CBR) has warned that the euro, although approximately 5 the rate will go up during the first half percentage points of these declines of this year, to peak at around 5.5% by came in late December, due to seasonal mid-year. This will partially be driven by Forex demand, and they had been a weak rouble and a rise in fuel prices. reversed by mid-January. The key However, the CBR expects the rate to driver of rouble volatility is sanctions- ease back to 5% by the year-end and to related news; however, in the absence decline steadily in 2020, to finally reach of any major escalation, in 2019 the the target of 4%. The projected upward currency is forecast to remain within trend in the first half of 2019 is expected the government’s target range of RUB/ to weigh on consumption in this period USD67-72. There is now a preference for but subsequently, as the rate starts a stable but weak rouble in order to boost to ease in the second half of the year, economic competitiveness and help confidence should be restored. better manage the federal budget.

Interest rates Government finances The CBR turned more hawkish in The adoption of the budget – or fiscal – late 2018 as it saw inflation rise and rule helped return the federal budget to the rouble weaken on the back of being in surplus in 2018 after a number concerns surrounding the sanctions. of years in deficit. The budget rule caps The CBR Governor also expressed the oil price assumption used in the concerns over a possible contagion federal budget at USD42 per barrel, from global events, such as the and any revenues earned above this are upward trend in US interest rates. diverted to the National Fund to help pay The key rate was raised to 7.75% late for, e.g., national projects. The federal last year, and the CBR has warned budget breakeven level last year was that it may raise it again in Q1 or Q2, USD57 p/bbl, hence the surplus of over although not by more than 25 or 50 2% is based on the higher average oil basis points. The key rate is projected price. The breakeven level this year is to start falling from early 2020, due forecast to be approximately USD48 to inflation easing and the rouble (as per barrel. This also means that the projected) being more stable. Finance Ministry does not have to tap international debt markets in 2019 if it assesses that respective conditions are unfavourable.

In 2019 the sectors likely to be of greatest interest to investors and to see a high level of M&A activity are:

Oil & Gas Consumer Technology

Capex spending in the oil sector is continuing to grow, The Russian consumer A small part of the National and the Energy Ministry expects growth in annual output sector continues to Projects Strategy Programme for a number of years before a peak is reached. This expand, having shaken is focused on technology and will continue to open up opportunities for investment off the effects of the digitalisation of the economy – and, in particular, sector consolidations as companies recession years of 2015 a high priority area for the seek to boost output through acquisitions. Sanctions and 2016. A market of 146 government. Regulations have created demand for domestically sourced oil field million consumers offers are forecast to change, to services, and this trend is set to continue in the coming significant potential for allow for a more investor years. Companies are actively looking for add-ons to growing existing services friendly environment, and expand their service offerings and to grow. and introducing new other incentives have been products and services. introduced. The projected The energy focus in Russia is shifting towards LNG. The Real wage growth will cost of the programme over largest projects are likely to include the next phases of continue, and even though the next four years is in the Yamal LNG project, the first phase of which is now consumer credit grew by excess of USD25 billion. operating at full capacity. A number of other projects close to 20% last year, the have been proposed by Gazprom and some of the oil market is still considerably majors, and these are expected to progress this year. underleveraged and Over the coming years there is forecast to be strong thus has strong growth growth in LNG processing in Russia, which will continue potential. to offer good investment opportunities for international partners.

Real Estate Transport Agribusiness Chemicals

The real estate and Expanding and upgrading The agriculture sector saw Russia intends to construction sectors have existing transport and strong growth in 2015-2017, process more minerals lagged in recent years, logistics infrastructure boosted by the weak rouble and extracted materials but are now beginning are also high on the list of and the Russian ban on within the country, so to attract investment. government priorities. Some imported food products. as to boost value-added Modern warehousing and of the largest projects to Last year the volume output exports. Investments affordable housing, using be listed on the national stalled close to the previous in chemical and government-subsidised projects programme will year’s record level, partially petrochemical facilities mortgage schemes, are include high-speed rail links due to the adverse weather have grown and, major priorities. and road upgrades. At the conditions, but also on according to a preliminary same time there is a clear account of infrastructure disclosure of national need to improve trade limitations related to moving, project priorities, this ports, including in relation storing, and exporting remains a key area for to access and handling, to goods. These bottlenecks future growth. help boost export volumes are currently being resolved, in such areas as agriculture. hence growth should resume Some of these projects are in 2019 and 2020. Continued already under way and many expansion in the agriculture more are expected in the sector and in food processing coming years, with foreign remain high priorities for the investors having the same government. access as local investors.

Russian Innovations & Technology

Debt restructuring transactions

Metals & Mining

RUSSIAN INNOVATIONS & TECHNOLOGY

This year Innovations & Technology sector saw a threefold increase in the number of closed deals, reflecting the overall focus of the economy on digital Maxim Filippov transformation. Supported also by Russian Government Head of M&A in Innovations & programmes, the sector is expected to attract Technology significant investment flows in the year ahead. Partner Deal Advsiory

It should come as no surprise, however, that technology deals made it to the top: the global economy is currently in the grip of a digital transformation 113 deals that is altering the ways businesses operate, as well as how people live. This digital trend is universal, and hence the Russian market cannot escape its influence. Throughout 2018 businesses in our country, small or large, were investing in a range of digital solutions, from mobile applications to artificial In 2018 the intelligence and blockchain products. Innovations & Looking at the deal ecosystem in Russia, one observes a trend of Russian majors combining efforts to create new digital products and services – this Technology sector resulted in some of the largest technology deals closed in 2018. saw the largest increase in the On-demand delivery services number of deals The Russian taxi market saw a number of deals in 2018. closed in Russia: The most notable was the creation of a joint venture 113 deals, vs 38 in between Yandex and Uber, which agreed to combine their ridesharing, food delivery, and related logistics 2 0 1 7. businesses in Russia and the CIS.

The deal was announced in 2017 and was closed early in 2018, with Yandex owning 59.3% of the new company, Uber 36.9%, and the remaining 3.8% being owned by company employees. The combined business was valued as high as USD3.8 billion. Towards the end of the year the company launched a new mobile application for Uber Russia, which leverages Yandex. Taxi’s technological platform and algorithms. In 2018 Yandex.Taxi also continued to develop its food delivery business, Yandex.Eda, which the company launched after acquiring Foodfox in late 2017. Foodfox and UberEats were combined into a single business line and began joint operations in early 2018. Yandex.Taxi, striving to grow its food delivery business, acquired in 2018 a 83.3% stake in Food Party, a company engaged in delivering cooking food products.

KEY M&A ISSUES IN 2018

In addition to these deals, a group of investors led by MegaFon and Mail.Ru Group bought a stake in Citymobil, a Russia-based company that provides online taxi-booking services. The companies invested a total of USD35 million, with Mail. Ru Group and MegaFon acquiring 18% and 15% stakes, respectively. Subsequently Mail.Ru Group agreed to invest in the taxi aggregator Vezyot. These acquisitions followed Mail.Ru Group’s previous acquisition of the food delivery platform Delivery Club.

E-commerce

Yandex was involved in one more eye- catching technology deal in 2018, this time on the sales side.

In April 2018 the Another notable deal in the Innovations & Technology Russian state lender sector was the announced acquisition of AliExpress Russia Sberbank acquired a by a group of investors consisting of MegaFon, Mail.Ru 50% stake in Yandex. Group, and the Russian Direct Investment Fund (RDIF). Market, an e-commerce retailing platform, from The consortium bought shares in communications, gaming, and Yandex. AliExpress Russia from Alibaba shopping. They are planning to leverage Group, which retained a 48% stake in Alibaba Group’s global ecosystem to The stake was valued at USD509 the company. Under the deal terms offer Russian consumers a greater million, and was paid for in cash. MegaFon will sell its 10% stake in Mail. range of high-quality products across all Post-deal, the two shareholders Ru Group to Alibaba Group in exchange price segments, both from Russia and own 45% each, with the for a stake in the joint venture, Mail. China, as well as from other countries. remaining 10% being allocated Ru Group will contribute its Pandao Furthermore, the platform will create to an equity incentive pool for e-commerce business (in addition significant opportunities for small- and Yandex.Market’s management to cash and distribution product medium-sized enterprises in Russia, and employees. integrations), while RDIF will invest by providing them with access to new capital. As a result, MegaFon will Alibaba’s 600-million customer base own 24% of AliExpress Russia, Mail. in all major global markets. Finally, Ru Group 15%, and RDIF 13%. The deal With this transaction by blending the strengths of each values AliExpress Russia at USD2 billion the lender is aiming of the partners, the joint venture and the Russian consortium’s stake at will accelerate the development of to create a Russian approximately USD1 billion. version of Amazon2. Russia’s digital economy, foster long- The new partners have outlined term technological cooperation, and German Gref, CEO of Sberbank that the joint venture will become a help build the future infrastructure of one-stop platform for social media, commerce both in Russia and globally.

2 Source: https://www.rbc.ru/finances/27/04/2018/5ae332279a79477da3f810a1

RUSSIAN INNOVATIONS & TECHNOLOGY

Digital investments of large telecoms

MegaFon was involved processes and reduce the time needed The transaction was part of an in another standout deal to market digital financial products. The equity raising process conducted deal signals the intention of MTS to by Ozon of more than USD60 in 2018, the creation of strengthen its position in the Russian million, with the remainder of the a joint venture between FinTech market, which is growing at a sum contributed by Baring Vostok itself, Gazprombank, record pace of 10% each year. funds and other investors. The Rostec, and USM investment in Ozon is a step taken Holdings. The new by MTS as part of its digitalisation strategy. And in line with its company, named MF strategy to develop into a strong Technologies, is intended MTS Bank was not Internet player, MTS closed two for projects in the digital other deals in 2018: the acquisition economy. the only technology of a 78.2% stake in Ponominalu. ru, for USD7 million, and a 100% deal from MTS in stake in Ticketland.ru, for USD56 As a result of the transaction, MegaFon million – both companies are will own 45% of the new company, 2018. The company engaged in online sales of tickets while Gazprombank, Rostec, and USM for entertainment events. Further Holdings will each own 35%, 11% and also invested USD19 to these investments in the 9%, respectively. Under the deal terms million in Ozon, Internet segment, MTS acquired MegaFon also transferred a 5.2% stake Gambit Sports, a European in Mail.Ru Group to MF Technologies. increasing its stake eSports organisation based in the The total transaction value was UK, for an undisclosed sum. USD450 million. in the leading online Together with its partners, MegaFon Russian retailer from plans to implement a number of digital projects, including software 11.2% to 13.7%. to digitalise the operations of major companies, as well as blockchain- based solutions. One of the most important projects of the partners is the development of a Financial Digital Platform. Using this platform, the companies will develop hi-tech services, including payment, credit, and other digital products. The partners will also create an investment fund for technology start-ups. Another Russian telecoms major, MTS, was also active in the M&A market for digital products in 2018. In July it increased its shareholding in its subsidiary MTS Bank, a Russia- based universal commercial bank, by buying a 28.6% stake for USD131 million. The acquisition is set to help the company expedite decision-making

KEY M&A ISSUES IN 2018

Inbound investments

Despite a general Asian investors also demonstrated smartphone producer Yota Devices, slowdown in the inflow an interest in Russian companies in thus bringing its total stake in the of foreign funds into 2018. In February 2018, for example, company to 40%. The deal was the Hong Kong-based investment valued at USD15.5 million, with Russian companies fund China Baoli announced it had USD0.5 million paid in cash and the in recent years, bought an additional 10% stake remainder using China Baoli’s own the Innovations & in the Moscow-headquartered shares. Technology sector has seen a number of foreign investors expressing an interest in Russia. Overall, the technology sector was rich in acquisitions in 2018, with The largest deal was the acquisition of the Russian transport safety systems Russian majors continuing to roll out manufacturer Transas by the Finnish technology group Wartsila Corp, their digitalisation strategies. MegaFon which valued the target at USD258 million. Established in 1990, Transas and Mail.Ru Group were the leading currently controls around 30% of domestic players in terms of number the global market of electronic chart and navigation systems, about 25% of transactions, and were followed of the installations of onshore ship traffic control systems, and over 45% by Yandex and MTS, which actively of the marine simulators market. It is claimed that the transaction will lead invested in technology solutions to the creation of “a new ecosystem throughout the year. for maritime operations”. Points to note

Innovation and advanced technologies are rapidly expanding strategic areas, and interest in them from both the government and private business is growing each day. At KPMG we have a long-established expertise centre, devoted to helping companies in the Innovations & Technology sector thrive in a digital world. Our Innovations & Technology M&A team is unique in the market, and combines professionals with an extensive and diverse knowledge of advanced technology solutions and investment banking and deal support backgrounds. In addition, the KPMG Innovations & Technology sector team is playing an active role in the implementing of the Russian Government digitalisation programme, and works closely with companies participating in the programme.

DEBT RESTRUCTURING TRANSACTIONS

In general we are seeing a trend of Russian banks working with greater competence and professionalism with distressed assets, and we Andrei Mitrofanov believe that as a result of adopting a well-thought-out strategy towards Head of Restructuring working with NPLs their level will Partner decline in 2019 and beyond, provided Deal Advisory that a stable macroeconomic environment is maintained.

Up to USD5 bln The largest of these transactions included the Mechel PXF loan restructuring and the debt restructuring (including debt from Russian banks) of the Croatian In 2018 the company Agrocor. Despite this figure appearing substantial, we believe that, as was the case in previous years, the actual volume of restructuring publicly disclosed transactions was more than 10 times greater. For example, in 2018 our restructuring team alone participated in projects with a total debt value of volume of around USD10 billion. corporate debt The vast majority of restructuring transactions are restructuring either not publicly disclosed or are not even treated transactions with as such by banks. We estimate that the real volume of debt restructuring transactions in 2018 involving Russian banks Russian banks was in the range of USD60–100 billion.

did not exceed In Russia, the main initiators of complex and large-scale publicly disclosed USD5 billion. corporate debt restructurings have historically been international banks. However, due to the business of these banks in the country contracting dramatically in recent years, with a focus on servicing previously issued loans to the most profitable export-orientated sectors (such as the oil and gas industry and metals and mining), no significant restructurings were initiated in 2018 by international banks. As a rule, but with a few exceptions, in projects involving international banks the focus was on solutions developed by the largest Russian lenders. Russian banks preferred bilateral transactions with borrowers, and as a result the respective transactions were generally not made public. We observed that restructuring transactions tend to go public when the bank itself recognises it as constituting a restructuring (as opposed to one tranche of debt being replaced with another), or if there is some public dimension to the debt (bonds, the debts of listed companies, etc.), or if the information is leaked by the press, sometimes at the initiative of the borrower or some other interested party.

KEY M&A ISSUES IN 2018

Since the recognition by banks of NPLs restructuring transactions yet, but In Russia, a unique combination in their books can lead to significant rather served as a preparation for of bail-in and bail-out mechanisms losses, and because of bank secrecy, them. The BNA began operating in continued as part of the process of lenders have little interest in garnering the middle of 2018, and we expect working with NPLs: private banks publicity; therefore, restructuring that restructurings will take place in first converted debt into the equity of transactions in Russia for the most 2019-2020. their borrowers, then their financial part remain undisclosed (the majority performance deteriorated significantly, Despite non-transparency, based on of transactions that the KPMG team and, consequently, they were bailed our projects we nevertheless observe a played an active role in were also out or turned around by the state via number of stable trends in the Russian not made public, and hence cannot indirect recapitalisation through various debt restructuring scene, which were be disclosed). This is illustrated, for state banks. strengthened in 2018 and which example, by the fact that although the are quite interesting from an M&A level of NPLs recognised by banks standpoint. is on average around 7%, informally banking professionals estimate the actual level to be about 30%.

An important event in the 2018 was a year of restructuring restructuring landscape not so much of borrowers, but of banks was the setting up in the second half of 2018 of themselves, against a backdrop of the Bank of Non-Core government measures to improve the Assets (BNA), which has taken on various banking sector. debts and shares from the borrowers of large distressed banks. The BNA has so far received an unprecedented level of problem assets from the banks Otkritie, Trust, Binbank, and Rost.

The size of the assets under BNA’s management also demonstrates the true level of NPLs in the Russian banking system: BNA received assets of the banks that made up only 6% of the total banking system, however the assets of these banks alone had a book value of over USD40 billion, and the volume of such assets is set to grow. The founding of the BNA was not only the most significant restructuring event in 2018, but also in recent history in terms of the scale of the project. This did not constitute a series of completed

DEBT RESTRUCTURING TRANSACTIONS

In 2018 banks continued to implement from shareholders. We have the popular Russian approach towards seen numerous examples of both the largest borrowers, where a bank large- and medium-sized projects Such an approach performs a debt restructuring by in various industries (metals and refinancing existing loans under new mining, construction materials, auto to restructuring allows conditions, which the borrower is able dealer, oil and gas) where banks to fulfil. Moreover, these conditions informally take control of a company, banks, by choosing can be quite preferential for the while the share capital continues to borrower (no debt repayments for belong to the original shareholder. the least damaging several years, a reduction in the cash In such cases, banks may or may component of the interest, etc.) Banks, not have formal representation option, to stabilise however, agree to such conditions on a board of directors or within management, but any significant because the available alternatives the situation in the transactions are agreed with the are often worse (e.g. enforcement bank. This set-up is possible for short term; however, is unlikely to yield a return of more banks due to the continuous pre- than 30%; the sale of debt, as a rule, default status of the borrower – the in the medium term, is performed at a discount of 50% banks alone decide whether or or more). Sometimes refinancing not to extend the next tranche of businesses lose conditions involve the introduction of a a loan, on the back of the personal cash sweep mechanism, when all cash guarantee of the shareholder. one of their main flows go towards debt servicing. We also observed that banks, after pillars: the motivation gaining de-facto (and, less often, de- An interesting trend jure) control over a business began, and drive of their in 2018 from an M&A irrespective of the shareholder’s standpoint was that wishes, to look for a buyer for the shareholders. banks increasingly business – and it is here that we see a strong correlation between sought to become quasi- the debt restructuring and M&A There has been a trend for an shareholders of their markets. increase in transactions between borrowers, and usually creditors to buy and sell debts majority shareholders. during the restructuring process, i.e. where a creditor in the process of negotiating with a borrower acquires That said, banks’ desire to secure other creditors’ exposures. Such tactics official shareholdings in this respect can lead to a noticeable pruning of a has become much less pronounced lender’s portfolio, a concentration of than in previous years, due to negative collateral in the hands of one entity, and, experiences related to recognising in theory, an increase in the percentage losses from the subsequent of the return from a lender by rescuing consolidation of assets, and a natural the borrower and partially writing off the unwillingness on the part of banks to debt of other lenders. Such transactions deal with the operational management between the lenders of one borrower issues of enterprises. occur much more frequently than deals We have observed that the strategy involving the sale of debt to specialised adopted by banks when obtaining funds, since access to information in quasi-shareholder control over such transactions is equal, unlike in a problem borrower involves transactions where a buyer purchases strengthening their position via debt – the buyer knows little about the purchasing at a discount debt from actual state of affairs of the borrower, other creditors (debt consolidation), the positions of different lenders, or and obtaining personal guarantees future cash flow forecasts.

KEY M&A ISSUES IN 2018 Outlook

In 2019 we expect to see a number of professionally organised debt restructurings by the BNA.

These deals will be conducted both in the form of credit industrial businesses. This is expected against a transactions and M&A transactions to sell assets (either backdrop of a general debt burden within this sector capital or collateral) that have been transferred to the and a decline in the incomes of its businesses, linked BNA. We do not rule out a preliminary consolidation to a lack of purchasing power on the part of the public, of groups of assets on the balance sheet of the and the continued consolidation of the agro-industry in BNA before a sale, for the purposes of realising the the hands of large holdings. We do not rule out though maximum level of synergetic value from these assets. that a number of players will simply leave this market. A situation similar to that in the agro-industrial sector We do not foresee a large number of debt prevails we believe in the air transport and auto dealer restructurings featuring mining or export-orientated sectors. enterprises, provided that the macroeconomic situation remains stable. However, the bilateral In general we are seeing a trend of Russian banks restructuring of large borrowers by large banks will working with greater competence and professionalism continue; this began several years ago and involves with distressed assets, and we believe that as a result the periodic refinancing of loans with new ones for of adopting a well-thought-out strategy towards working the same period – such transactions will as before not with NPLs their level will decline in 2019 and beyond, be made public. We believe that in 2019 a number provided that a stable macroeconomic environment is of debt restructurings (possibly with an exit via maintained. an M&A) could take place in medium-sized agro-

Points to note

In this rapidly changing environment, every company faces challenges. A step in the wrong direction can sometimes have significant effects on corporate performance and company value. KPMG has been working in Russia with highly leveraged companies since 1998. And since 2009 our integrated team of restructuring professionals has overseen all the largest restructuring engagements in Russia and the CIS. In our work we draw on both Russian and international experience, engaging where necessary experts from KPMG firms globally, and having in place professionals from various areas, including financial analysis, tax, debt finance, operational restructuring, and M&A. We have worked with companies in virtually every industrial sector and with all the largest banks in the Russian banking system, guiding our clients through challenging times to deliver real results for stakeholders.

METALS & MINING

Olga Plevako During 2017-2018 several large deals were initiated in the Metals & Mining sector, but were never Head of Metals & Mining completed – therefore they are expected to be Partner Deal Advisory finalised in the near future.

Throughout the year there was considerable activity in terms of preparing transactions, searching for investors, organising financing, and holding negotiations; however, only a fraction of deals were finalised. The reasons for this include the appetite of sellers, which continued to remain strong (fuelled by relatively high prices for raw materials and metals in the past two 2018 can be years), caution on the part of buyers, and stringent requirements being set by banks providing financing, related to the quality and profitability of assets. described as Large deals that were announced but fell through included: the sale of a being a year of stake in Polyus Gold to a Chinese investor, FOSUN; the acquisition of a stake in Gold of Kamchatka, considered by the shareholders of Vysochaishy non-finalised JSC; and a number of deals involving coal assets. Although all these make the results for 2018 rather modest, at the same time they indicate a high transactions for likelihood that several large transactions will be completed in 2019– companies in the 2020. metals and mining Russian M&A in Metals & Mining 55 sector. 53

31 12.2 28 22 22 20 8.8 7.5 6.4 5.3 6.0 4.9

2012 2013 2014 2015 2016 2017 2018

Deal value, USDbn Number of deals

Source: KPMG analysis

KEY M&A ISSUES IN 2018

One of the largest transactions in The largest deal announced in 2018 was the acquisition 2018, related to the acquisition of of the Baimskoye copper deposit, one of the largest in a 2.1% stake in Norilsk Nickel by Whiteleave Holdings (part of the the world, by KAZ Minerals, for USD900 million in cash Interros group), is under dispute. and shares. It was subject to an appeal at the London High Court, which ruled During the first stage of the behind deals was the redistribution of that the transaction was invalid; transaction, KAZ Minerals receives a shares among existing shareholders – this decision was then appealed in 75% stake in the project, and for the this was an important feature of the November 2018 by both the seller remaining 25% there is a fee deferral, largest deals. and the buyer, and the question as subject to the project conditions being Deals were also driven by strategic to whether the transaction will be fulfilled by 31 March 2019. annulled was unresolved at the time objectives, such as a desire to focus of writing. In recent years one of the main on key projects and to sell assets that drivers behind M&A activity in the are remotely located or which require metals & mining sector has been the additional management – for example, restructuring of the debts of mining a series of deals initiated by Polymetal. Overall, in 2018 companies, when borrowing banks For other players, the task of increasing initiate a change of ownership or the the production base or building the total volume sale of a share of their enterprises production chains remains significant. to repay part of their debt, or revise Such deals include the acquisition of of deals was down loan conditions. This driver was the Malmyzh deposit by the Russian especially pertinent for medium-sized Copper Company at the end of 2018. by more than transactions. Another significant driver 23% on the 2017 level; at the same time, there was a relatively small drop in the number of transactions – hence there was a fall in the average deal value.

In 2018, as was the case in the previous five years, local deals were at the fore, both in volume and quantity terms. In 2017 the numbers were significantly influenced by a large deal to acquire an 18.8% stake in the En + Qatari sovereign fund and AnAn Group (Singapore), for USD1.5 billion. This year, transactions worth over USD1 billion have not been realised.

METALS & MINING

Outlook

Taking into account the significant backlog from last year, when deals were being prepared, we believe that 2019 will be rich in announced and completed deals.

We expect to see a number of medium-sized deals prevail in the sector, however, serious interest in mining in the coal segment and involving acquisitions of companies on the part of Asian investors should be gold mining companies. The activity of ferrous metal noted. Supported by intergovernmental organisations, companies in building supply chains, including in relation as well as banks, we believe that a number of exciting to iron ore raw materials and scrap preparation, has deals can be looked forward to in the next one-to-two also recently witnessed a revival. Continuing the trend years. seen in recent years, in 2019 domestic transactions will

Points to note

We have worked closely with the most prominent Metals & Mining companies in Russia and the CIS for over 20 years, and have built up an extensive understanding of existing legislation, current issues and most recent trends, and how these may impact the business models of major players. The KPMG Metals & Mining practice, as part of the KPMG Global Centers of Excellence in Metals & Mining, is able to bring leading capabilities to Russia and the CIS region and to deliver bespoke solutions to our clients, which enable them to respond quickly and effectively to industry opportunities.

KPMG Russian M&A database Appetite and capacity for M&A This report is based on the KPMG Russian M&A Our analysis of forward-looking appetite and capacity database which includes transactions where either for Russian M&A is based on the principles of KPMG’s the target (inbound) or acquirer (outbound) or M&A Predictor, a tool which tracks important indicators both (domestic) are Russian. All data is based on 12 months forward. The rise or fall of forward P/E transactions completed between 1st January and 31st (price/earnings) ratios offers a good guide to the overall December 2018, or announced during this period but market confidence, while net debt to EBITDA (earnings pending at 31st December 2018. Historical data may before interest, tax, depreciation and amortisation) differ from earlier versions of this report as the KPMG ratios helps gauge the capacity of companies to fund Russian M&A database is updated retrospectively future deals. for lapsed deals and information subsequently made Our analysis is based on 39 Russian companies for public. 2018, all the raw data within the Russian M&A review Data includes transactions valued in excess of USD5 was sourced from S&P Capital IQ as at January million, as well as transactions with undisclosed deal 2019. The financial services and property sectors are values where the target’s turnover exceeds USD10 excluded from our analysis, as net debt/ EBITDA ratios million. Deal values are based on company press are not concerned relevant in these industries. Where releases as well as market estimates disclosed in the possible, earnings and EBITDA data is presented on a public domain. pre-exceptional basis. The KPMG Russian M&A database has been complied over a number of years based on information included Macro trends and medium term in the Mergemarket M&A deals database and EMIS DealWatch database, together with KPMG desktop forecasts research of other sources. Macro trends and medium term forecasts comprise The allocation of deals to industry sectors may involve publicly available data collated from State Statistics using our judgment and is therefore subjective. Agency, Central Bank, Apecon, Bloomberg and We have not extensively verified all data within the Macro-Advisory. KPMG Russian M&A database, and cannot be held responsible for its accuracy or completeness. Analysis of different databases and information sources may yield deviating results from those presented in this report.

1st January — 31st December 2018

Macro trends and medium term 1 forecasts

2 Appetite and capacity for M&A

3 Cross-border M&A highlights

4 Sector highlights

APPENDIX 1. Macro trends and medium-term forecasts

Trend 2014 2015 2016 2017 2018 2019E 2020E 2021E

GDP, USD bln 2,000 1,360 1,347 1,635 1,551 1,556 1,633 1,836

Growth, real % YoY 0.7% –2.8% –0.2% 1.5% 1.6% 1.3% 2.0% 2.2%

Inflation - year-end, % YoY 11.4% 12.9% 5.4% 2.5% 4.3% 5.0% 4.0% 3.6%

Real disposable income, % YoY –1.0% –6.5% –5.9% –1.7% 1.0% 0.6% 1.5% 2.2%

Unemployment, % EOP 5.3% 5.6% 5.4% 5.0% 4.8% 4.8% 4.7% 4.6%

Budget, balance % of GDP –0.5% –2.4% –3.4% –1.4% 2.1% 1.6% 1.0% 0.8%

Current account, % GDP 3.0% 5.3% 1.9% 2.1% 7.1% 5.4% 4.6% 3.7%

RUB/USD, year-end 56.3 72.9 60.7 57.6 69.5 68.0 66.0 64.0

RUB/EUR, year-end 68.3 79.7 63.8 68.9 79.5 79.0 75.0 73.0

Brent, USDp/bbl, average 99 52 44 55 73 64 62 60

Source: State Statistics Agency, Central Bank, Macro-Advisory estimates

APPENDIX 2. Appetite and capacity for M&A

The market capitalisation of Russia’s largest listed companies saw almost no change in 2018, thereby continuing the negative trend of 2017 in all industrial sectors, except for Oil & Gas. Although capacity for M&A continued the previous year’s positive trend, appetite for deals was down significantly in 2018, reflecting the cautious attitude of investors.

Market cap Appetite Capacity (Largest companies) (Forward P/E ratio) (Net debt/EBITDA) 4.1% Dec 2018

–3.0% –2.9% Dec 2017 –6.2% –15.1%

–24.3%

Market capitalisations recovered slightly in 2018 compared to 2017, but remained negative. –2.9%

Forward P/E ratios, a measure of appetite, continued the negative trend of the previous year and were down -24.3% in 2018. –24.3%

Net debt to EBITDA, a measure of capacity for M&A, is forecast to improve by an average 4.1% after a -15.1% decline in the past year, with only Metals & Mining having a negative outlook. 4.1%

APPENDIX 3. Cross-border M&A highlights

Inbound M&A deal value by region Inbound M&A deal volume by region (2018 vs. 2017), USDbn (2018 vs. 2017)

2% 9% 8% Europe 29% 33% 35% North America 36% 42% CIS 2018 57% 2017 2018 2017 0.3% Asia-Pacific 18% 1% 54% MEA 2% 13% 4% Other regions 0.3% 5% 19% 6% 2% 18% 2% 6%

Source: KPMG analysis Source: KPMG analysis

Outbound deal value by target’s region Outbound deal number by target’s (2018 vs. 2017), USDbn region (2018 vs. 2017)

17% 14% Europe 13% 13% 32% 3% 1% North America 13% 8% CIS 33% Asia-Pacific 2018 24% 2017 52% 49% 2018 10% 2017 19% CEE Other regions 11% 3% 7% 19% 17% 1% 19% 11% 11%

Source: KPMG analysis Source: KPMG analysis

APPENDIX 4. Sector highlights

Oil & Gas Transport & Infrastructure

Consumer Markets Communications & Media

Real Estate & Construction Automotive

Innovations & Technology Agriculture

Metals & Mining Chemicals

Banking & Insurance Power & Utilities

SECTOR HIGHLIGHTS

Oil & Gas

Inbound Total value Oil & Gas largest deals in 2018 176.1% Target Acquirer Vendor % acquired Value USDm Qatar Investment USD7.3 bn USD14.2bn 1 Rosneft Glencore 9.18% 4,427 Authority 96.8% Outbound Minority 2 LUKOIL LUKOIL 5.2% 3,000 shareholders Volume n/d 3 Arctic LNG 2 Total SA Novatek 10.0% 2,550

Domestic 32 deals Minority 4 Rosneft Rosneft 3.2% 2,000 shareholders 70.6% –22.0% SAFMAR Financial Minority USD6.9bn 5 Tatneft 2.9% 698 Group shareholders

Market share 27.5%

Consumer Markets

Inbound Total value Consumer Markets largest deals in 2018 82.4% Target Acquirer Vendor % acquired Value USDm Sergey Galitskiy USD8.1bn 1 Magnit VTB Bank 29.1% 2,442 USD3.0bn (private investor) 55.6% Outbound 2 Donskoy Tabak Japan Tobacco Agrocom Group 100.0% 1,582

–97.0% 3 Magnit Marathon Group VTB Bank 11.8% 1,017 Volume USD0.1bn SAFMAR Financial 4 Eldorado M.Video 100.0% 794 Group Domestic 68 deals Japan Tobacco Trade Company International (JTI); Megapolis 305.4% –5.6% 5 10.2% 533 Megapolis Philip Morris Investment USD5.0bn International (PMI)

Market share 15.6%

SECTOR HIGHLIGHTS

Real Estate & Construction

Inbound Total value Real Estate & Construction largest deals in 2018 –6.3% Target Acquirer Vendor % acquired Value USDm International USD0.7bn USD5.3bn 1 Suvorov Plaza Sberbank 100.0% 828 Centre –29.0% Outbound Stroyprojectholding; 2 Mostotrest Arkady Rotenberg Blagosostoyanie 94.2% 689 113.8% (private investor) Volume USD0.1bn Riverstretch Trading & 3 O1 Properties* O1 Properties 100.0% 378 Investments Domestic 134 deals Rivyera Trade KLS Eurasia Venture Sergey Gordeev 4 100.0% 266 –32.3% 71.8% Centre Fund Ltd; KLS Securities (private investor) USD4.5bn PPF Real Estate Holding; 5 Nevsky Centre Stockmann 100.0% 198 PPF Group

Market share 10.3% * The transfer of assets was carried out in settlement of the debt of O1 Group, which amounted to USD378 million, while the value of the transferred assets is estimated at USD3.5 billion.

Innovations & Technology

Inbound Total value Innovations & Technology largest deals in 2018 Target Acquirer Vendor % acquired Value USDm Vladimir Kremer (private USD5.3bn OC Oerlikon Renova Group of USD0.3bn 1 investor); Evgeny Olkhovik 23.1% 1,324 Management Companies –4.3% (private investor) Outbound MegaFon; Mail.ru Group 102.3% 2 AliExpress Russia Limited; Russian Direct Alibaba Group 52.0% 1,053 Volume Investment Fund USD3.0bn Rostec; Gazprombank; Joint 3 MF Technologies 450 MegaFon; USM Holdings venture Domestic 113 deals DST Global; ICONIQ Capi- tal LLC; Sequoia Capital; –50.5% 197.4% Robinhood Existing 4 Kleiner, Perkins, Caufield 6.5% 363 Markets shareholders USD2.0bn & Byers (KPCB); NEA; Thrive Capital; CapitalG Sergey Generalov 5 Transas Group Wartsila Corporation 100.0% 258 Market share 10.2% (private investor)

SECTOR HIGHLIGHTS

Metals & Mining

Inbound Total value Metals & Mining largest deals in 2018 –70.7% Target Acquirer Vendor % acquired Value USDm USD4.9bn USD0.9bn 1 GDK Baimskaya KAZ Minerals Aristus Holdings 100.0% 900 –23.6% Outbound Roman Abramovich 2 Norilsk Nickel Interros Company 2.1% 780 250.3% (private investor) Volume United Company Zonoville Investments USD0.3bn 3 The ONEXIM Group 6.0% 658 RUSAL Limited

Domestic 53 deals Minority 4 Norilsk Nickel Interros Company 1.6% 442 shareholders 15.5% –3.6% Polymetal Otkritie Financial USD3.7bn 5 n/d 4.6% 230 International Corporation Bank

Market share 9.5%

Banking & Insurance

Inbound Total value Banking & Insurance largest deals in 2018 –40.5% Target Acquirer Vendor % acquired Value USDm Deposit Insurance Existing USD0.2bn USD3.3bn 1 Promsvyazbank* 99.9% 1,967 Agency shareholders –64.1% Outbound Mikhail Gutseriev (private investor); SAFMAR Financial 1,075.0% 2 Invest Project Said Gutseriev 100.0% 210 Investments Volume (private investor); USD0.3bn Radigton Enterprises SAFMAR Domestic 48 deals SAFMAR Financial 3 Financial Institutional investor(s) 15.0% 163 Group –67.8% 45.5% Investments USD2.8bn 4 Blagosostoyanie Gazprombank Russian Railways 50.0% 160 Nu Pagamento SA Existing 5 DST Global 45.9% 150 (Nubank) shareholders Market share 6.3% * The transaction is part of insolvency proceedings being undergone by Promsvyazbank.

SECTOR HIGHLIGHTS

Transport & Infrastructure

Inbound Total value Transport & Infrastructure largest deals in 2018 –96.6% Target Acquirer Vendor % acquired Value USDm USD2.4bn Novorossiysk USD0.0bn 1 Commercial Sea Transneft Summa Group 25.0% 750 33.7% Port Outbound 58 Daojia Inc; Cainiao 56.1% Network Technology Co Volume 2 58 Suyun Ltd; InnoVision Capital; n/d n/d 250 USD0.4bn Russia-China Investment Fund (RCIF)

Domestic 53 deals Far Eastern 3 Transcontainer VTB Bank Shipping 25.1% 239 299.1% 35.9% Company USD1.9bn 4 Sfat-Ryazan NefteTransService OTEKO 100.0% 207 Riverstretch Trading & Investments; Pavel United Wagon 5 Vashchenko (private n/d 18.9% 169 Market share Company 4.5% investor); Financial group Budushcheye

Communications & Media

Inbound Total value Communications & Media largest deals in 2018 Target Acquirer Vendor % acquired Value USDm Minority n/d USD2.0bn 1 MegaFon MegaFon 18.6% 1,124 shareholders –50.2% Mobile Outbound 2 Mobile TeleSystems Sistema 5.6% 478 TeleSystems –93.6% USM Holdings Volume Limited; Anton USD0.0bn 3 ESforce Holding Mail.ru Group Limited 100.0% 100 Cherepennikov (private investor) Domestic 46 deals United Media Salerton Investments 4 Mail.ru Group 80.0% 97 –19.9% –20.7% Agency Limited USD2.0bn iTech Capital; Sergei 5 MDTZK Mobile TeleSystems Solonin (private 100.0% 56 investor) Market share 3.9%

SECTOR HIGHLIGHTS

Automotive

Inbound Total value Automotive largest deals in 2018 331.0% Target Acquirer Vendor % acquired Value USDm Alliance Rostec Auto USD0.4bn USD1.6bn Existing 1 AvtoVAZ BV; Rostec; Renault 53.5% 969 shareholders 952.6% SAS Outbound Alexander Fedoseev (private investor); 2 Pack&Fly Group Safe Bag SpA 13.1% 289 n/d Volume Polad Akmedov (private investor) Russian Domestic 7 deals Dynamics Group of 3 Tekhnodinamika Technologies State 75.0% 208 Companies 1,728.2% –30.0% Corporation USD1.2bn Alliance Rostec Auto Minority 4 AvtoVAZ BV; Rostec; Renault 3.4% 67 shareholders SAS

Market share 3.0% Rimma Kalmykova Ingosstrakh 5 GAZ Group 17.5% 35 (Private Individual) Insurance Company

Agriculture

Inbound Total value Agriculture largest deals in 2018 –32.4% Target Acquirer Vendor % acquired Value USDm USD1.5bn Preobrazhenskaya USD0.1bn Family of Oleg 1 Base of Trawling Ostrov Sakhalin 96.4% 430 Kozhemyako –35.5% Fleet Outbound Russian Fishery Gleb Frank (private Maxim Vorobyev 2 44.7% 311 Company investor) (private investor) Volume n/d Novorossiysk Existing 3 VTB Capital 69.1% 203 Grain Plant (NGP) shareholders Domestic 37 deals 4 Altai Broiler Cherkizovo Group Prioskolie 100.0% 68 –33.9% –41.3% Moscow Gleden Invest; Sviaz-Bank; Vladimir Processed USD1.4bn 5 Alexander Klyachin Korsun (private 100.0% 49 Cheeses Plant (private investor) investor) Karat Market share 2.9%

SECTOR HIGHLIGHTS

Chemicals

Inbound Total value Chemicals largest deals in 2018 >1000% Target Acquirer Vendor % acquired Value USDm USD1.3bn Tatammoniy; USD0.9bn Indorama Venture Fund of Corporation; Russian the Republic of –60.8% 1 Ammoni n/d 800 Outbound Direct Investment Tatarstan; State Fund; Yadran-Oil Development Corporation VEB.R Volume n/d Dmitry Lobyak 2 Uralkali Sberbank 10.0% 374 (private investor)

Domestic 10 deals Strongfield; Valentin Buyanovsky A1 Investment; 3 Polyplastic Group (private investor); 48.2% 104 –88.0% –16.7% A1 Group Miron Gorilovsky USD0.4bn (private investor) Meleuzovskiye Gazprom 4 Promkhimtorg n/d 10 Mineral Fertilizers Neftekhim Salavat Market share 2.5% Moscow Chemical Vasiliy Sharov 5 Metafrax 99.0% n/d Company (private investor)

Power & Utilities

Inbound Total value Power & Utilities largest deals in 2018 –19.5% Target Acquirer Vendor % acquired Value USDm DVB Leasing; Federal Grid USD0.1bn USD1.2bn 1 Inter RAO Region Group; Company of Unified 10.0% 554 –36.9% Inter RAO Energy Systems Outbound Siberian Siberian 2 Energy Company Generating n/d 78.0% 282 n/d Volume (SIBECO) Company 3 Inter RAO Inter RAO RusHydro 4.9% 272 Domestic 18 deals Institutional inves- Management of Inter 4 Inter RAO 1.1% 73 –36.8% 28.6% tors RAO VEB.RF – agent for USD1.2bn Izhevskie 5 Rosseti government of 100.0% 32 elektricheskie seti Udmurt republic Market share 2.4%

Sean Tiernan Head of Advisory Russia and the CIS Partner T: + 7 495 937 4477 E: [email protected]

Lydia Petrashova Head of Deal Advisory Russia and the CIS Partner T: + 7 495 937 4477 E: [email protected]

Maxim Filippov Head of M&A in Innovations & Technology Deal Advsiory Russia and the CIS Partner T: + 7 495 937 4477 E: [email protected]

Andrei Mitrofanov Head of Restructuring Deal Advisory Russia and the CIS Partner T: + 7 495 937 4477 E: [email protected]

Olga Plevako Head of Metals & Mining Deal Advisory Russia and the CIS Partner T: + 7 495 937 4477 E: [email protected]

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