WSJ: Cartesian Capital, Russia's Private Equity Fund to Buy Part of Moscow Stock Exchange

Dow Jones News Service, 20.07.2012

MOSCOW--Cartesian Capital LLC is joining with Russia's new state-sponsored private equity fund to buy part of the Moscow stock exchange in the government-backed vehicle's first deal involving a U.S. investor, officials said Friday.

The deal comes as Moscow seeks to boost its status as a world financial center and as the exchange moves closer to an initial public offering.

Under the terms of the deal, the New York-based CartesianCapital private equity fund will own a 2.5% stake in the MICEX-RTS exchange, having purchased the shares from ZAO UniCredit Bank.

"This is our first deal with a U.S. fund and we value it very much," said Russian Direct Investment Fund (RDIF) CEO Kirill Dmitriev.

The MICEX-RTS was valued at $4.5 billion when the two exchanges merged last December. An announcement of the sale did not disclose the terms of the purchase, but at that value Cartesian'sinvestment would be worth about $113 million. A person familiar with the deal said Cartesian received a small discount.

For its part, the RDIF is purchasing approximately 1.5% of the exchange. Added to a stake bought in an earlier deal in January with the European Bank for Reconstruction and Development, the RDIF will now own 2.7% of the exchange.

ZAO Unicredit's stake will be reduced from 9.6% to 6.2%.

Cartesian Capital's managing partner Peter Yu said the fund had been eying the Russian exchange for some time and felt that the RDIF joining the deal made it more attractive.

"We have looked at exchanges around the world and we think the potential in Russia is fantastic because of the commitment to make Moscow an economic center," Yu said by phone. "We approached RDIF because it is the ideal partner for any investors in Russia as they bring a commitment to transparency and a deep local knowledge."

The RDIF was created in June 2011 to attract foreign private equity investment into Russia. It will be capitalized with $2 billion a year in state cash for five years for a total of $10 billion. Under its mandate, the RDIF is required to secure co-investment that at a minimum matches its own commitment.

The deal is the third completed by the RDIF since it began investing in January--the first being the earlier MICEX-RTS purchase with the EBRD, and the second a purchase of 26% of power generator EnelOGK-5 along with a consortium of private equity firms.

So far, the RDIF has invested $250 million with co-investments of $850 million for a total of $1.1 billion. The fund expects to fully invest all $2 billion by the end of the year.

The fund has also secured a commitment of $500 million for the Kuwait Investment Authority to co-invest in all RDIF deals. Separately, the RDIF and the China Investment Corp. have created a joint fund to invest in Russian private equity deals, with each side contributing $1 billion.

"We are quite pleased with the progress," Mr. Dmitriev said. "It was just a year ago that this started as an idea."