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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