golden fleece capital for business development in georgia business development opportunities in...

Golden Fleece Capital For Business Development in Georgia

Business development opportunities in GeorgiaKiev, March 29, 2012

www.gf-capital.com I Kiev, March 29, 2012 1


Agenda

Georgia – Untapping Great Development Potential

Georgian Economy at a glance Economy competitiveness Growth Perspectives in:

Agriculture Energy Manufacturing Transport & Logistics Tourism,

Specific Opportunities

AgendaGrowth Perspectives

Agriculture

Energy

Manufacturing

Transport & Logistics

Tourism


www.gf-capital.com I Kiev, March 29, 2012


Economy at a Glance


2010 2011

GDP US$ 11.7 bln. 14.35 bln.

GDP - Real Growth Rate 2010 +6.4% +6.8%

GDP - Per Capita (PPP), USD 5,035 5,430

Inflation rate (average annual) 7.1% 12.6%

Unemployment rate 16.8% 16.7%

Total exports (Mil. USD) 1,583 2,189

Total imports (Mil. USD) 5,095 7,058

Trade surplus/deficit (Mil. USD) -3,512. -4,869

Public Debt 39.1% 41.7%

Public Deficit -5.4% -3.9%

Government bond ratings

Standard & Poor's: B+/Stable/BMoody's rating: Ba3


61 57 89 27 5 63 4 71 98 25 Competitiveness Rank

Competitiveness & Trade

Georgia has significant negative trade balance with higher ranked trade partners



2020 Target competitiveness rank countries and neighbours 2020 Target competitiveness rank countries and neighbours

Countries Competitiveness Rank

Agriculture, % of GDP

Manufacturing Industry, % of GDP

Non-Manufacturing Industry, % of GDP

Services, % of GDP

GDP per capita (PPP), 2010

Tunisia 32 10 18 15 58 9,600

Estonia 33 3 17 12 68 20,600

Czech Republic 36 3 25 13 60 25,300

Slovenia 45 2 23 11 63 27,100

Azerbaijan 57 6 4 65 24 9,900

Albania 88 21 12 8 59 8,800

Ukraine 89 8 23 14 55 6,658

Georgia 93 10 12 9 69 5,035

Moldova 94 11 14 1 74 3,100

Armenia 98 18 15 30 37 5,500

Source: World Economic Forum, Globalcompetitiveness Report 2010-2011

Competitiveness Index



Georgian Economy 2020


Georgian Economy, 2010 - 2020

Agriculture, % of GDP

Manufacturing Industry, % of GDP

Non-Manufacturing Industry, % of GDP

Services, % of GDP

GDP per capita (PPP), 2010

2010 10 12 9 69 5,100*

2020 10 22 12 56 17,480*

GDP 2020, at fixed prices, USD 4,141 9,110 4,969 23,190 9,220

GDP 2010 at fixed Prices, USD 1,200 1,400 1,100 8,300 2,690

Compaund Annual Growth Rate, % 13% 21% 16% 11% 13%


Agriculture

• Wide-range of climatic zones

• Rich and pesticide-free soils - Ideal place for production of organic food

• Rich tradition of winery, growing citrus, grape, sunflower, tea, etc

• Legal provisions to own (i.a. for foreigners) agricultural land

• 0% VAT on primary production of agricultural products

• 0% export duty + 100% VAT refund

• 0% of import duty on agricultural and other equipment

• 100% depreciation allowance on investment

• Low-cost and skilled human resource base

• Liberal labor regulations

• Strategic link from East to high value Western markets

• Well developed transport sector including railway and sea ports essential for effective exports of agricultural goods

• Available 80,000 Ha agricultural land through privatization

Source: Government of Georgia’s Sector Presentation Source: Government of Georgia’s Sector Presentation

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Agriculture

Energy

Manufacturing


Tourism



Agriculture Export-Import, 2010

According to the 2010 data, the export and import of agro food products were US$314 million and US$939 million.

In 2010, main export commodities were: nuts, citruses, natural grape wines, spirits, soda, mineral & spring waters, sheep, cattle, etc.

Source: Government of Georgia’s Sector Presentation Source: Government of Georgia’s Sector Presentation www.gf-capital.com I Kiev, March 29, 2012


Major Export Products

Export Items, in USD 000’s 2009 2010

Other nuts, fresh or dried 69 955,8 64 035,9

Undenatured ethyl alcohol, spirits, liqueurs and other spirituous beverages 54 019,4 54 573,3

Wine of fresh grapes 31 997,0 39 269,0

Waters, natural or artificial mineral and aerated waters, not containing added sugar 24 674,7 30 155,1

Live bovine animals 16 902,5 15 932,4

Waters, mineral and aerated waters, containing added sugar 10 683,5 13 420,3

Citrus fruit, fresh or dried 15 702,7 12 142,9

Other food preparations 7 996,0 8 112,5

Live sheep and goats 17 054,0 7 842,9

Wheat and meslin 3 248,3 7 256,9

Fruit and vegetable juices 2 883,0 6 047,1

Potatoes 127,7 1 238,1

Tea 2 112,3 1 186,3

Source: Government of Georgia’, Economic Sector Presentation Source: Government of Georgia’, Economic Sector Presentation



4 Reasons for Underdeveloped Agricultural Sector




Important Snap-Shots

Main challenges are monocultures and low production per ha.•With technology and knowhow average harvest could be tripled

•During the Soviet Era, Georgia used to be main supplier of the Union’s market with selected agro products, which pushed the country into monocultural agro production (ex. grape, citrus, tea etc)

* Data for 1988 is exaggerated to some extent due to reporting interests in the centralised system of planning

Product 1988 (thousand tons)* 2008 (thousand tons)

Vegetables 685.5 165.0

Fruit & berry 653.0 158.5

Grape 619.7 175.8

Citrus 436.9 55.2

Tea 458.7 5.4

Agro product Average harvest per ha. Good precedents per ha.

Wheat 1.8 tn. 4 tn.Tomato 10 tn. 65 tn.Potato 10 tn. 45 tn.




Regional Energy Hub – Net Exporter




Electricity Balance



Georgia’s Energy Dynamics




Transmission Capacity




Large-Scale Hydro Power Projects



WWW.TRACECA.ORGWWW.TRACECA.ORG

traseka

18www.gf-capital.com I Kiev, March 29, 2012


Transport and Logistics

Current contribution to GDP, USD Mil

Target contribution to GDP in 2015, USD Mil

Financing estimate, 2012 - 2015, USD Mil

Target contribution to GDP in 2020, USD Mil

Financing estimate, 2016-2020, USD Mil

Marine 0 400 330 2,000 1,500

Road 223 500 550 2,000 2,000

Railway 42 200 100 400 500

Air 34 500 400 1,600 1,000

Cargo handling and storage 148 500 620 2,000 2,500

Other supporting transport activities

141 300 150 800 250

Travel agencies , tour operators; tourist assistance

187 300 50 600 150

Total 776 2,700 1,800 9,400 7,900

There is a huge untapped potential in Marine, cargo storage and handling and air cargo logistics. Georgia-Turkey railway expeced completion in 2013 will open another efficient transportation

possibilities Marine and railway development will stimulate road transport and logistics centers development. Transport system development will signicantly improve Georgia’s products cost competitivenes.

Source: GFC AnalysisSource: GFC Analysis



Marine Transport Development Potential

Marine Transport

Current Fleet, Quantity

Fleet in 2015

Fleet Capacity in 2015 and transport volumes

Investment estimates, USD Mil

Estimate Annual revenues, USD Mil

Estimated paybeck period, Years

Container Ships, TEU 0 8 20,000250,000

200 250 4–5

Tanker, DW 0 2 70,000 70 100 4–5

Dry Bulk Cargo Ships, DW

0 2 50,000 60 40 5–10

Fishing Vessals, t. 40 (120t.) 60 70 100 1–3

Total 400 490

Source: GFC AnalysisSource: GFC Analysis

Growth potential is huge when starting from zero Georgia still has experienced and qualified Marine personnel, hystory of shipbuilding and operating

significant fleets



May 27, 2011

.

Source: USAID, EPI Value Chain AssessmentSource: USAID, EPI Value Chain Assessment

Number of tourist arrivals in 2011 – almost 3 Million Hotel and restaurant revenues in 2010 – USD 200 M Kobuleti and Anaklia Free Tourism Zone (plot of land for

symbolic GEL 1 price, customized profit and property tax exemptions)

Number of tourist arrivals in 2011 – almost 3 Million Hotel and restaurant revenues in 2010 – USD 200 M Kobuleti and Anaklia Free Tourism Zone (plot of land for

symbolic GEL 1 price, customized profit and property tax exemptions)

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Agriculture

Energy

Manufacturing


Tourism



WHY TO INVEST IN GEORGIA /Investment Incentives /

Liberal Tax Code Tax-Free Regimes (FIZ, FTZ) Preferred Trade Regimes with Major

Trading Partners Tax Incentives for Agricultural Investments Cheap & Skilled Workforce Liberal Labor Code Investor Protection Regulations Investment Guarantees Choice of Law for Contracts International Dispute Resolution

Mechanism



Agriculture

Energy

Manufacturing


Tourism



Real Estate Industry Drivers

Privatization Liberal land ownership law Road infrastructure development/improvement Urban and regional development Simplified permitting & free competition Old Tbilisi New Life – Tbilisi municipality initiative Free Touristic zones in Kobuleti and Anaklia

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Entertainment and Retail Center


Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal

Project Overview

Aim of the project is to attract USD 7 Mil financing for the swimming pool, gim and retail ceneterLocated on the newly built main road in the center of Tbilisi’ most affluent area;Land is the property of the interested investor/developer with the best in the market experience in the simmilar projectsRetail space occupancyis assured by preliminary contracts with the future tanantsDesign and site preparation works are completed


Project Example in Real Estate

Only three competing projects with similar concept and target market segment. Total number of houses of ALL competing projects is less than 500 during the next 2-3 years.

Possibility to adjust project scale and phases to sales development to reduce sales risks. This provides more flexibility in the project development compared to multistory residential building development, which in current market conditions requires entire building completion before starting sales, thus increasing sales risks.

1 sq.m. prices of the multistory residential buildings are similar to the project proposed prices of USD 800-1000. We expect to sell to potential medium market apartment buyers by proposing very competitive and much more attractive lifestyle alternative.

VillaPark – Project Overview Aim of the project is to attract USD 16M financing for the elite village project in Tbilisi with 57% IRR and 4.5M NPV investment returns.

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Other Real Estate Development Opportunities

Inexpensive shopping centers in Tbilisi as well as in the regional cities;

Modern bus stations with shopping, food courts and entertainment;

GF Capital can assure renting agreements with tenants prior to the construction as well as manage project from concept to turn key to the operator

May 27, 2011

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Cold Storage in GeorgiaGreenfield Investment Opportunity

Project Overview

Partnership Fund, an investment fund of the Government of Georgia, is inviting strategic investors to co-invest in a USD 7 mil. Greenfield project aiming at development of 4,700t Capacity Fruit and Vegetables Cold Storage serving 1.2 mil. population of Tbilisi and Rustavi with quality fresh fruits and vegetables year round. Co-investment and support for setting up the project will be facilitated by Partnership Fund.

Financing•The needed financing, estimated at USD 7 mil., is envisaged to be formed from:•The Investor’s contribution in the amount of 25% of financing needed in common equity•Fund’s matching contribution through sub-debt or common equity•Debt financing in the amount of 50% of total financing need, that can be acquired in Georgian market with assistance of Partnership fund

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Cold Storage in GeorgiaGreenfield Investment Opportunity

Project Overview

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal Estimated Investment Return Indicators (USD mil.)

Project NPV 1.5

Project IRR 16%

Equity Holder’s IRR 21%

Payback Period 6 Yrs.

Disc. Payback Period 10+ Yrs.

Estimated Start-up Costs (USD mil.)

Equipment 3.4

Land 0.3

Buildings 2.2

Other 0.6

Working Capital 0.5

Total 7.0

Projected annual performance at optimal capacity (USD mil.)

Revenue 3.4

Gross Profit 1.9

Operating Profit 0.8

Net Profit 0.4

Net Profit Margin % 10.3%



Christmas Tree FarmingGreenfield Investment Opportunity

Project Overview

Partnership Fund, an investment fund of the Government of Georgia, is inviting strategic investors to co-invest in a USD 7.9 mil. Greenfield project aiming at Christmas tree growing and exporting from Georgia to Europe

Financing•The needed capital, estimated at USD 7.9 mil., is envisaged to be formed from:•The Investor’s contribution in the amount of 25% of capital needed in common equity•Fund’s matching contribution through sub-debt or common equity•Debt financing in the amount of 50% of capital needed, that can be acquired in Georgian market with assistance of Partnership fund

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Christmas Tree FarmingGreenfield Investment Opportunity

Project Overview

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal

Estimated Start-up Costs (USD mil.)

Machinery 0.18

Land 0.10

Buildings 0.08

Other 0.40

Working Capital 7.10

Total 7.86

Projected annual performance at full capacity (USD mil.)

Revenue 4.0

COGS 1.5

General & Admin 0.3

Depr. Interest & Tax 0.5

Net Profit 1.7

EBITDA Margin % 55%

Estimated Investment Return Indicators (USD mil.) Project NPV 1.0

Project IRR 16%

Equity Holder IRR 17%

Payback Period 9 Yrs.

Disc. Payback Period 11 Yrs.



Project example in Wood Processing

Project OverviewThe client proposes to sell all rights and obligations related to the registered forest management license free of due and/or accrued tax and lending obligations to the potential operator. The proposed price for the license is USD 10M. Investment NPV – USD 7,4 M (@15% discount rate) and IRR – 57%The deal sub-option includes current operator continuing operations and own 30% of the company and selling the remaining 70% at USD 7MAdditional business development option: production of various type wood boards to substitute imports.

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Consulting

Marketing analysis and business plans from the industry and country’s best experts will eliminate high-price mistake risks and provide better choice of alternative options in business development in Georgia

Knowing value chain current settings and wider choice of cooperation and competition options will help in defining most effective and efficient market entry and development strategies

We will provide our advice on tax and regulatory matters

Our reporting system will be tailored to required scope and schedule beyond on traditional financial reporting, including key performance indicators for the industry, market and value chain components.

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Project Management

We will reduce business development risks and costs by:

Identifying, analyzing, planning and implementing best risk response measures;

Your development will be international, while costs will be local;

We will provide you with all the needed control instruments to assure project objectives performance

You will achieve better project performance because we will:

Provide best available industry experts and managers;

Assure plan performance by consistently measuring project targets and milestones performance;

Provide better alternatives to choose for each and every project component as well as for the entire project;

Explore possibilities of donor assistance, cost savings and preferential regulatory options

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



If looking for investing in Georgia, we will provide wide range of pre-screened investment opportunities and options;

Joint projects for finding strategic and financial investors and financiers;

Attracting Financing

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal



Contact Us

Objectives

GFC

Agriculture

Tourism

Real Estate

Wood Processing

Manufacturing

Our Proposal

golden fleece capital for business development in georgia business development opportunities in...

Documents

i kiev

business development

railway development

transport system development

golden fleece capital

usd milmarine04003302

usd miltarget contribution

logistics centers development