FUNDS: Vadim Grib sets up Ukraine's first distressed fund

By bne IntelliNews August 31, 2009

Graham Stack in Kyiv -

Vadim Grib's TEKT investment group, with 14 years on the market one of Ukraine's oldest, is marking the seismic downgrade of Ukraine's economic reality by putting its asset management funds up for sale in August and switching its focus to a private equity fund for distressed assets, Ukraine's first distressed asset fund.

While TEKT is not the first company to quit the moribund Ukrainian stock market, it's the first to go the whole hog and open a private equity fund for distressed assets. "I've always been more interested in investing in specific projects rather than finance, and I focus on a company's profitability instead of capitalization," says Grib, chairman and owner of TEKT.

Grib is one of Ukraine's most colourful and even controversial investment figures due to his track record of hostile takeovers. Speaking 11 years to the day from the Russian economic collapse of 1998, he recalls that, "the 1998 crash confirmed my approach - in 1994 I lost a lot of money in banks, and in 1998 I lost nothing, and made use of the chance to make some very profitable acquisitions. And this is what I intend to do now."

Distressed and depressed

According to Grib, TEKT Private Equity Fund I is looking to take controlling stakes in distressed companies that are either crisis-proof or likely to respond quickest to the start of an economic recovery. "Our approach is very simple: we are mainly interested in companies with stable operating revenues, but crippled by a heavy debt burden," he says. The surging amount of non-performing loans in Ukraine "opens significant opportunities for distressed assets funds. We can offer companies capital instead of debts."

Grib is planning a small, but highly profitable, closed-end distressed assets fund. For each of the around 10 holdings, Grib specifies a minimal annualized return of 45% and a target of 100%. Grib says he generally exits projects within 18 months after a 150% annual return. TEKT will only buy controlling stakes in companies, with each deal in the region of €1.5m-8m. The fund's target volume is UAH500m (€43m).

Grib's distressed asset fund differs in crucial aspects from worldwide equivalents. In Ukraine, there is no legal framework for a key worldwide investment technique - buying companies' debts off banks at a discount. On the other hand, loopholes in Ukraine's legislation let TEKT pay out on exited projects immediately, without waiting for the fund to close after its four-year term expires. This fits with Grib's project-focused approach. He says he prefers to talk with potential investors about projects rather than about the fund's overall strategy and profit algorithm. "You just end up talking hot air about abstract concepts and philosophy when the crucial thing is implementation," says Grib, who is not known for mincing his words. "In general, investors here know me and my reputation of at least 50% annualized returns."

He also admits he is not particularly interested in foreign investors who will require detailed explication of the fund's technology. "There are plenty of resources in Ukraine for investment, so foreign investors are not a priority at the moment." Grib says it took him only one week to raise the fund's UAH500m and that with only talking to 20% of the people on his list. "25% of the money is mine, and the rest belongs to private individual investors," he says.

Grib lists companies that are niche monopolists as primary acquisition targets. "No land or real estate," he says. "Also no agriculture - there is simply not the institutional framework."

In contrast to most private equity funds, Grib's fund will settle for nothing less than a controlling stake in any of the companies. "This has simply always been my philosophy never to trust anyone. Ukraine suffers from bad corporate governance, and without a controlling stake you will find your investment may be worthless."

Ukraine's media have often accused Grib of "raiding," and indeed some list him as Ukraine's number-one raider. Grib is having none of it. "One man's investor is another man's raider. I simply buy first, and then insist on my rights. Obviously in the case of a hostile takeover, it is easy for the losing side to cry 'raider', but I have never used blackmail or illicit methods."

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FUNDS: Vadim Grib sets up Ukraine's first distressed fund

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