galt & taggart securities – the advisor of choice to leading companies

Galt & Taggart Securities – The advisor of choice to leading companies

www.galtandtaggart.com.ua

Contents 2

On August 7, 2008 G&T obtained a securities trading license from the Belarusian Economic Ministry and became a member of the Belarusian Stock Exchange

Why did we do this?

Galt and Taggart believes there is a good opportunity to develop a market in Belarus

- Strong demographics: A population of more than 8 mln, large by most Central European standards

- Underdeveloped economy in need of capital

- Lack of a current equity market and desire by the authorities and local businesses to make one

- Part of the integrated group of services we offer as a member of the Bank of Georgia group, if we have a Bank in a country, we also run a securities business

- Last European in line for equity markets

- Strangely sensible government for Europe’s last dictatorship

Galt and Taggart has operations in six CIS republics

Assets under management


Stable macroeconomic foundation 3

BYR bn, unless other stated 2003 2004 2005 2006 2007Nominal GDP 36,565 49,992 63,679 79,267 96,087Real GDP growth, % 7.0% 11.4% 9.2% 10.0% 8.2%Industrial output 33,387 48,530 60,509 77,267 91,504Capital investment 7,131 10,783 14,818 20,374 25,267Retail trading 15,170 19,452 24,955 31,062 38,328Services 4,049 5,212 6,759 8,307 9,988Trade balance (1,612) (2,717) (722) (2,618) (4,335)Export 9,946 13,774 15,977 19,734 24,339Import 11,558 16,491 16,699 22,351 28,674Inflation (CPI), % 28.4% 18.1% 10.3% 7.0% 8.4%PPI, % 37.5% 24.2% 12.1% 8.3% 16.3%

Belarus is not going away any time soon, particularly not the banking sector

Banking market is stable with little foreign capital, only about 24%

National bank has guaranteed deposits and even opened them up to deposits from foreigners

Growing trade deficit, falling prices for exports, higher gas prices and risk of no Russian credit are the macro risks


The only way for the securities market is up… 4

Mcap to GDP ratio Belarus: 9%Czech Republic: 51%Poland: 25%Bulgaria: 26%

No securities market Total Market Capitalization Relative to GDP


What are equities for? 5

Why do you need an equity market?

New tool for raising capital

New means of assessing the value of your company

Improves transparency and public awareness

Good relations with investors make it easier to tap capital markets

Prestige.


Reforms that have been carried out well 6

What has been done right• Lowering taxes, - Capital gains and profit tax on equities dropped from 40% to 24%- Eliminating taxes on income and capital gains on corporate and government fixed income securities• Cancelling governments right to a golden share (this particularly worried foreign investors)• Efforts to improve business climate- Belarus rose from 122th last year to 95th in terms of attracting capital according to the UNCTAD survey. • Efforts to open up to the West & East- Even if OSCE monitors were not willing to acknowledge the most recent parliamentary elections as free, they clearly appreciated the effort. • Plans to simplify taxes• BCSE is a solid and reliable platform


Things that need to change 7

What is wrong?- Lack of free float: Few companies have a free float or more than 3-4%- Very little trading volume: A total $4.75 bln traded last year and most of this was pre-arranged sales of privatized assets-Blocks posted for sale by State Property Fund on the exchange are still very small-Lack of information: While the market is transparent, there is little attempt to promote information among the public – Basic accounting information is not easily accessible-No clarity on taxation for ADR/GDR programs for Belarusian stocks-Transaction process is slow-All trades restricted through the exchange, sometimes at prices restrictive for small clients-Create internal market-Bring back BEKAS or some other OTC market


What must change 8

What needs to be done•Simpler taxes

•Greater transparency

•Create local environment for trading shares

•Work on local pension laws to encourage investment in fixed income and equities

•More complex banking products

•Don’t be afraid to make money


No Real Liquidity 9

2007 Results 9M08 Results Total trades Avg. Daily Turnover Total trades Avg. Daily Turnover

Currency market 22 859,9 92,6 12,760,00 70,8Equity market 10 015,6 39,6 7,033 0,391Futures 8,2 0,03 5,79 0,322Total 32 883,7 132,2 7,051,55 39,2BEKAS (OTC Market) 6 056,0 23,9 Mcap 4,5 bln - 4,5 bln -Estimated Avg FF 3% - 3% -

Country Mcap, USD bln Daily Turnover, USD mln

Bulgaria 15,2 4,80 Poland 221 100,00 Belarus 4,4 0,30 Ukraine 30 3,20

Czech Republic 58 207,00


Good value for your money? 10

In theory, the lack of transparency makes Belarus a good value

Exchange Country Index Value 2007 P/S 2008 P/S 2007 P/E 2008 P/E

ATX Austria 2073.39 0,51 0,50 5,92 5,6

WIG20 Poland 1778.83 0,65 0,62 5,98 7,03

PX Czech 864.2 1,16 1,22 7,65 7,35

RTS Russia 700.41 0,64 0,44 3,86 3,01

BUX Hungary 12681.21 0,66 0,69 4,96 5,31

BET Romania 3460,35 1,27 1,05 10,26 7,49

SOFIX Bulgaria 623,26 1,47 3,35 4,80 9,89

- Belarus - 0,54 - 0,35 -


Potential Size of equities market 11

More than 1,600 OAO’s in Belarus with sales in excess of USD 22,3 bln and more than USD 793 mln in net income

Roughly 20 capital markets candidates, were the world a better place

More than 85 companies that would be considered viable as private placements Local market has more potential than most people realize, once pension and investment fund laws are developed

If you look deeper into the market the opportunities are even greater


How much of equity market is left 12

Hedge fund industry has fallen by 11%, down to USD 1.72 tln

Industry losses and redemptions totalled USD 210 bln

Average US Stock Fund is down 34.17%

Still an estimated USD 2.5 tn of excess leverage and USD 5 tn in excess assets in US and Europe.

All this means there will be little appetite from Emerging markets and hedge fund investors in Eastern Europe but…

… Private equity and strategic buyers could be the light at the end of the tunnel.


Potential Size of M&A market 13

M&A Transactions Value of sale

Company Industry Buyer USD mln Share, %

Lidskoe Pivo Beverages Olvi Oy 16 51

BEST Telecommunications Turkcel 600 80

Bank Mezhdunarodny Torgovly I Investitsii Banking Alfa Bank 38 39

Beltransgas NaturalGas Transportation Gazprom 2500 50

VelCom Telecomunications Telekom Austria Group 730 70

SlavneftBank Banking VTB 25,5 64,9

AtomBank Banking Delta Bank 5 100

BelNarBank Banking Bank of Georiga 34 70

ParitetBank Banking Sistema 50 99

Belvneshekonomank Banking Vneshekonombank 24,1 97,24

A little history…


Potential M&A market 14

Transactions in financial sector worth at least … USD 1,30 bln

Dairy product sector consolidation imminent -- (Sales of top five companies close to USD 500 mln)

Same likely true of meat processing

Remaining drinks and consumer goods producers will be bought by global or regional majors to take advantage of economies of sale (Heineken & Syabr / Olvi and Lidskoy Pivo, for example)

Consolidation light manufacturing, as was the case with Silvano

Foreign competition and acquisition of furniture makers

Participation in big, state-run industries will take place via JVs, will be slow and only involve major global players (No oligarch-style takeovers on the cheap)

Attractive office and retail centers will also be sold

What’s next?


How will the credit crunch affect Belarus? 15

No Capital markets debuts for the next two years: Six months ago it seemed possible to create an IPO from one of Belarus’ leading banks or companies, this is no longer an option and is likely off the table for at least two years.

Slowdown in economic growth: Belarus’ economy is unlikely to shrink, but growth will slow on falling orders for machinery, falling prices for oil and pressure on commodity prices

More M&A activity: A lack of access to capital markets will result in more M&A transactions. Local market will slowly take shape: A lack of hungry investment bankers and brokers will slow down the process of creating the Belarusian market


Our Contacts 16

Galt & Taggart Securities Ukraine

119 Saksaganskogo St., 3rd floor, Kyiv 01032, UkraineTe.: +38 044 5698401Fax.: +38 044 5698402www.galtaandtaggart.com.ua

Galt & Taggart Securities Georgia

Pr. Nyezavisimost, 87А-18220012 MinskRepublic of BelarusTe.: +375 (17) 2802933Fax.: +375 (29) 5332798www.galtaandtaggart.by

galt & taggart securities – the advisor of choice to leading companies

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