How do we add value to your return? Two examples
In October and November NAV of share of Balkan Emerging Frontiers Fund (BEF Fund) has indeed not changed much, however in December we will make fine return for you. We would like to present you our proactive role, beyond just buying and selling investments in BEF Fund’s portfolio.
Main reason for splendid December return is our success in almost half year long litigation and consequently BEF Fund’s sale of one of investments well above its purchase price (almost two times the average purchase price). We thus estimate that increase of NAV of share in BEF Fund in December will be above 5% (exact value depends also on value of other investments in BEF Fund’s portfolio).
After completion of this transaction we can disclose that the investment was Postal Savings Bank (Banka Poštanska štedionica) from Belgrad, Serbia. In this case we have benefited by legally enforcing Companies Act, under which minority shareholders can require from majority shareholder, possessing more than 90% of a company’s share, to purchase all other shares of the company with purchase price as the highest out of market or book price. BEF Fund has bought the shares of this investment at an average price of half book price. The litigation was initiated in June (after no additional shares with adequate discounts could be bought) by BEF Fund’s Investment Manager and it took almost half a year (in between there was a change of the government in Serbia) to resolution. We had to demonstrate the connection between largest two shareholders, as although around 45% of share of this (now BEF Fund’s former) investment is owned directly by Republic of Serbia and around 50% by Post of Serbia (PTT Communications Srbija), the Republic of Serbia actually owns 95% of voting rights. We have demonstrated the clear connection between both shareholders and by the end of November we have finally received the resolution from Serbian government, approving their purchase of the shares owned by BEF Fund. The actual transaction took place in the beginning of this month and will result in BEF Fund’s December return. All soliciting and other expenses of the litigation have been covered by BEF Fund’s Investment Manager and not from BEF Fund assets.
Second instance of our proactive role is our lobbying media campaign that is presently ongoing in Republika Srpska in Bosnia and Herzegovina. As mentioned in our previous newsletters, after successful implementation of Montenegrin regulation on privatization investment funds at the end of last year, we have stimulated and financed formation of ‘Association of shareholders of privatization investment funds in Republika Srpska’ in order to foster process of transformation of former privatization investment funds and to see to its best implementation. We firmly believe that shares in this privatization investment funds offer one of the best investment opportunities, as they are quoted with large discounts (on average 35 % – 40% on NAV) on already undervalued assets in their portfolios. Hence they offer multiplying return potential, as in the future they will be quoted with lesser discounts on higher asset values. They are also less risky than usual stock investment mainly for two reasons: 1. Risk is spread on large number of investments in their portfolio and 2. Regulation by Securities Commission.
Foundation of association and other operational costs were and are presently financed by the BEF Fund’s Investment Manager (not from the Fund’s assets) with main goal of maximizing value of BEF Fund’s investment in Republika Srpska (RS) and indirectly also in Federation of Bosnia and Herzegovina (FB&H), as we believe that regulation that will be accepted in RS will be similarly implemented also in FB&H.
Association has been actively involved in preparation of new regulation. We evaluate the new regulation proposal that was already publicly presented as very good for BEF Fund and other minority shareholders. At the beginning of governmental procedures of accepting this regulation proposal, opposing pressure by management companies of these privatization investment funds has started. We have assessed that as a critical point in acceptance of regulation that might have decisive influence on future value of BEF Fund’s investments in these privatization investment funds. That is why we have published series of articles in local newspapers supporting the currently proposed regulation (there are some examples in local language published on Association’s webpage). These media campaign was also financed by BEF Fund’s Investment Manager. Since we were (informally) approached by the government for the acknowledgment of our support to their regulation proposal and further advices, we believe that there is high probability that regulation that will be accepted will be also in the best interest of BEF Fund.
Recently an Association of Small Shareholders has been established in FB&H. We will support them and advise them on need to be basis with goal to increase the value of BEF Fund’s portfolio, primarily with our advices on experiences from Slovenia and other countries that were/are in transition, similar as we did in Montenegro.
As another year is ending we are sending you our best wishes for joyful holiday season and wish you personal and business prosperity in 2013!
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