Download Babylon Fund - Investment Presentation

Babylon Fund
Taking a fresh look on Iraq
Investment Presentation – Q4 2009
Godvig Capital Management Corp
3076 Sir Francis Drake’s Highway
Road Town, Tortola - BVI
6, rue de Cerisiers
L-7344 Luxembourg
Phone: +1 284 494 7163
Phone: +352 33 55 02
Web:
www.godvig.com
E-mail: [email protected]
Presentation of Godvig
Godvig Capital
Management
Babylon Fund
Global Frontiers Fund
* Investing into Iraqi-
* Investing into securities
dependant securities
in global frontier markets
Godvig Capital Corp
Godvig Analytics Sarl
Godvig Foundation Iraq
Dog Fund
* Investing into badly
performing US large caps
* Size: 30 MUSD
* Size: 30 MUSD
* Size: 30 MUSD
* Offshore Fund (BVI)
* Sicav SIF Fund (Lux)
* Offshore Fund (Cayman)
* Bank: VP bank (A+)
* Bank: BCEE (AAA)
* Bank: Butterfield (A+)
* Admin: ATU/VP bank
* Admin: EFA Lux
* Admin: Butterfield
2/30
Presentation Structure
•  Investment Case
•  ISX Structure
•  Babylon Fund Structure
3/30
Executive Summary
•  Investment Case
1: Lowered risk
2: High growth
3: Reform & Progress
4: Cheap valuations
5: Earnings growth 6: Flow & Access
7: Strong FX
8: Oil reserves
8: Uncorrelated
•  Babylon Fund Structure
1: Accessible
2: Liquid
4: Well-known Service Providers
6: Transparent
8: Unique
3: Experience
5: Performance
4/30
Risk Overview
Source: EIU Nov 2009 / 100 = most risky
5/30
Macro Economy
•  High GDP growth: 5-10% 2009 / +50% in 5 years
(IMF, Business Monitor, Global Insight, Opec)
•  Debt levels vanishing
•  Inflation tamed
•  Hugh FX Reserves
IMF Stat 2008
IMF Stat 2008
IMF Stat 2008
6/30
Economics - Executive Summary
•  Growth
+7% 2009: Oil production & exports, non-oil sectors improve
•  Inflation
Controlled: Falling & stabilizing below 10% / appreciating dinar / adjust fuel prices
•  Fiscal Policy
2010 Budget: Strictly contained / Increases in Investments / rising
execution rates. Any deficit covered by FX reserves.
•  Monetary Policy
CBI tight policy: Keep policy rates positive to core inflation / Appreciating dinar.
•  Structural Reforms
Progress: Restructure state banks / Laws on reconciliation / Oil metering
systems / Transparency focus / Stalled hydrocarbon law / Debt negotiations /
Financial Management Process (accounting-reporting-auditing).
7/30
The Oil Story
•  60% of Iraqi Economy
•  85 % of Gov. Revenues
Oil Reserves:
Large & Cheap to Produce
NB: Only 20% of all discovered Iraqi oil fields have been developed.
8/30
Oil - Profit Formula
PROFIT
9/30
Oil - Revenues
Annual oil export revenues:
Exports (mbd)
Rev @ $40/bbl
Rev @ $60/bbl
Rev @ $100/bbl
1.5
$22 bn
$33 bn
$54 bn
 2009b
2.5
$37 bn
$55 bn  2009f
$92 bn
3.5
$51 bn
$77 bn
$128 bn
NB I: The whole Iraqi GDP amounts to only $65bn.
NB II: Iraq is 3 times more sensitive to oil price changes than f.x Russia

10/30
 2013f
Oil - Infrastructure
•  Oil is produced in
relative secure areas
•  70% in the South 30% in the North
•  Oil law still held up in
the Parliament
Pipeline Attacks
11/30
Political Agenda
•  Kirkuk
•  Oil Law
•  Federalism
•  Reconciliation
•  Reconstruction
•  US troop pull-out
•  National elections - 21 Jan 2010
12/30
Security Situation
Brookings Institute
13/30
ISX - Snapshot
•  Trading
– 5 days / week
10.00 - 12.00
•  Listings
– 35 with ongoing trading
•  Market Cap
– 2.5 billion USD
•  Turnover
– 1 - 2 MUSD per trading hour
•  Electronic Trading - Since spring 2009
•  System
– Nasdaq/OMX – Horizon Trade
•  Foreigners
– Full ownership rights
14/30
Stock market - Valuations
Iraqi-listed securities are:
•  Cheap
vs.
Iraqi History
•  Cheap
vs.
Surrounding Countries
•  Cheap
vs.
Oil Reserves & Economy
15/30
ISX - Performance
16/30
Market Size of ISX
ISX will gain in significance:
•  Expect it to grow 3 times
in 3 years
•  Expect it to grow 10 times
in 10 years
•  Rising share prices + IPO's
(Telecom, Oil Services,
Banks & Media)
17/30
ISX - Market Structure
ISX Sectors - MCap
Iraq Economy
Traded Volume
Turnover
18/30
ISX - Blue Chips
HSBC 70%
NBK - Burgan Bank /
KIPCO
Kuwait IHC
- Kuwait
70%
- 70%
Ahli United Bank
(AUB) Bahrain 49%
* National Bank (Qatar): Mansour Bank
* Export & Finance Bank (Jordan): National Bank of Iraq
* A’ayan Company (Kuwait) - 49%
19/30
Investment Snapshot - CBIQ
•  Established in Feb 92 as full commercial bank
•  Ahli United Bank in Bahrain the main strategic
shareholder – owns 70% of CBIQ
•  CBIQ voted “Best bank in Iraq” by the Bankers
Middle
East
•  Full brokerage services on the ISX
•  Objective to contribute positively to the social
and economic advancement of Iraq
Middle
East
20/30
Investment Snapshot
Equipped for Growth
2003
• 
Profit Driven Vision
Net Profit – US$’000
• 
Prudent Earnings
• 
Qualitative
2004
2005
2006
2007*
659
963
1,129
1,502
1,850
Total Assets – US$’000
38,488
49,977
105,840
124,316
157,5
53
Total Loans – US$’000
5,288
9,852
17,037
19,415
14,091
• 
- Management
Customer deposits – US$’000
17,022
22,591
52,804
59,565
73,987
• 
- Ownership
Total Liabilities – US$’000
34,924
41,440
63,227
66,479
95,584
• 
- Credit portfolio
Shareholders’ Equity – U
S$’000
3,565
8,537
42,614
48,170
59,007
• 
- Infra, IT, STP, Staff
Return on Average Assets
2.0%
2.2%
1.8%
1.3%
1.2%
• 
• 
- Op. Environment
- Sustained Earnings
Return on Average Equity
20.4%
15.9%
11.3%
3.3%
3.15%
Cost to Income
46.3%
53.1%
41.6%
24.7%
15.4%
• 
- P/E 5 P/B: 1
Risk Asset Ratio
47.6%
47.8%
101.3%
114.8%
210%
21/30
Portfolio Performance
Performance of Babylon Fund
September 2009
Market Triggers in 2010
  Economic Growth
  Oil Export Revenues
  ISX – Electronic 5 day-trading
  ISX System - Nasdaq/OMX
  ISX – Accessibility for foreigners
  Rising quality of company profits
  IPOs of Telecom sector
  Privatisation plans of SoEs
  Trust in bank sector rising
  New Laws - Oil, Investments, Reconc.
  National elections & Kirkuk issue
  Diplomatic / Geopolitical progress
  Budget execution rising
  Dinar appreciation
22/30
  Diversification needs for foreigners
Fund Structure
Assets
Regions
Sectors
Risk Level
Alternative assets /
Babylon Fund
Sector equity funds
Balanced equity
Bond fund
Money Fund
1
23/30
Investment Process
1.  Screening
2. Research
• 
• 
• 
•  Market Liquidity analysis
•  Fundamental analysis
•  Techs, Sentiment, Flow and Momentum
analysis to the extent possible
70
50 securities
Universe: Iraqi-dependency
Market Cap weighted
Eliminate non-compliant stocks
100
70 securities
3. Construction
• 
• 
• 
• 
Portfolio optimization:
Diversification
Sector balancing
Correlation analysis
50
30/40 securities
4. Monitoring
•  Ongoing analysis
•  Re-adjustment policies
•  Risk management process
24/30
Management
Mr. Englund, 41 years, is the founder of, and a fund manager for,
Godvig Capital Management. In total, Björn has spent 15+ years
in front-office positions, mainly in large Scandinavian banks.
Former positions have varied from manager of pre-emerging
market pools to trading strategist on institutional Scandi-desks. In
the Mid-East region, he was stationed with the UN in Iraq and
Kuwait in 1991, and in Lebanon in 1989.
Fund Manager
Björn Englund
Iraqi Team
Iraqi Advisors
Mohammed Mohammed
ISX Prop Trader / Analyst
Baghdad, Iraq
Dara Maghdid
ISX Market Analyst
Lund & Erbil, Kurdistan/Iraq
Johannes Liss
Portfolio Analyst
Lund, Sweden
Rod Monger, PhD, USA
Iraqi Financials, Accounting
Sulimaniya, Kurdistan/Iraq
Al-Fawz Brokers
Investment Analysis
Baghdad, Iraq
Rabee Securities
Investment Analysis
Baghdad, Iraq
Rasul & TRC
Legal Analysis
Erbil, Kurdistan/Iraq
25/30
Organisation
Auditors
KPMG
Supervision
Monetary Authorities
Lawyers
Maples & Calder
Babylon Fund
Fund Admin / Bank
VP Bank / ATU
Custodians
VP Bank, CBIQ
Fund Manager
Godvig Capital
Advisory Board
26/30
Fund Facts
•  Minimum Subscription
–
100.000 USD
•  Subscription / Redemption
–
Monthly / Quarterly
•  NAV-calculations
–
Monthly
•  Management fee
–
2%
•  Performance fee
–
20% above hurdle of 8% y/y
•  Sub / Red fees
–
up to: 5% / 1%
•  Other
–
High-water mark & Claw Backs
•  Jurisdiction
–
British Virgin Islands
27/30
Media Spotlight
Media:
•  WSJ, Financial Times
•  CNBC, TV 4
•  Die Zeit, Handelsblatt
•  Spiegel/Das Investment
•  Vanity Fair
•  Dagens Industri
•  Reuters
•  Kauppalehti
28/30
•  HedgeWeek, MoneyMag
•  … and many others…
Recap - Babylon Fund offers…
•  Strong Investment Case
1: Macro,
2: Oil story
4: Reconstruction & Aid Flows
6: Market Size
7: Trend
3: Reform Agenda
5: Performance
8: Commitment
•  Easy Exposure
– To the “Iraqi Investment Story”
•  Liquidity
– Open-ended, Listed holdings
•  Secure Structure
– Well-known Service Providers
•  Unique Product
– Only fund investing in the ISX
29/30
Contact
Björn Englund
Godvig Capital Management
Continental office:
Godvig Capital
6, rue des Cerisiers
L-7344 Steinsel
Luxembourg
Phone: +352 33 55 02
Fund Manager
Scandinavian office:
Godvig Capital
Idrottsgatan 4
S-222 29 Lund
Sweden
Phone: +46 46 12 26 17
+352 33 55 02 / +46 735 29 53 33
[email protected]
www.godvigcapital.com
[email protected]
30/30
Appendices
Fund Reporting
Fact Sheet
ISX
Market Watch
.
Internet
Data Bases
•  Bloomberg: “Babylon VI”
•  Hedge Fund Research
•  Lipper
•  Hedge International
•  Morningstar / Altvest
•  Zawya
•  Et Cetera…
a.1
Investment Risks
Investors should regard the following factors
as the most probable to loose money upon:
1)  Fraud and Corruption
–
Mainly at the company level
2)  Oil Price below 25 USD
–
Delays economic recovery
3)  Political Fragmentation
–
Nationalization or Civil war
4)  Illiquid Markets
–
At any planned exit
a.2
Iraqi Parliament
a.3
Legal Reform Agenda
a.4
International Commitment
Now:
Investment Capital & Technical Expertise
The Good Cause - Supporting Iraq supports:
* Democratization & Prosperity
* Geopolitical Stabilization
* Gender Equality
Previously:
a.5
Additional Graph Infos
a.6