Various listed Russian-focused funds in the process of winding up, often under pressure from shareholder activists, could make investors who bought their shares earlier this month 25% or more by the time they have returned capital, according to Jefferies.
Jefferies says: “Although the timing of exits is uncertain, shareholders have clearly made their feelings known – on more than one occasion – that they wish to see exits and capital distributed as soon as possible.”
Working on the two-year period Aurora’s board mentioned, and “even after applying what we believe are harsh haircuts to the portfolio” producing a 45p per share ‘realisable’ NAV, Jefferies analysts still calculate the IRR of 68.5%, based on Aurora’s the mid-August offer price.
Jefferies’ calculations of IRR do not factor in potential NAV growth, and Jefferies notes “this clearly could impact significantly the IRR achieved. Prospective investors should be aware of the possibility that some managers may choose to accelerate their realisation strategies by selling assets below fair value.”
East Capital Financial Investors, a feeder private equity fund gives access to East Capital Financials Fund, which holds strategic stakes in mainly unlisted financial companies across Eastern Europe and the CIS states, predominantly Russia and Ukraine.
Jefferies notes ECFI’s 11 investments are marked at a discount of about 30% to listed comparables, subject to a ‘floor’ multiple of one times book value “provided the bank is not showing signs of distress”.
Under its initial proposals on launch in 2006, the fund could run until 2016, however its board has shortened this to January 2014, citing a poor M&A environment and unstable market conditions.
Jefferies notes: “Based on discussions with the manager early this year, we understand its intention had been to exit the bulk of the portfolio within 12 to 18 months by mid-2013, with some of the remaining investments – namely Probusinessbank (25% of ECFI NAV) and the Ukrainian banks in the portfolio (12% of ECFI NAV) – requiring extra time.”