Articles

As covered earlier by AllEquityFunds, EBRD had purchased 25.5% of the Belorussian retailer West Ost Union. Based on the $3 million transaction cost of the 25,5% of the shares, the entire company is valued at $12-12,5 million. 

West Ost Union had emitted an additional issue of shares that had been purchased by EBRD. West Ost Union creates its network of supermarkets based on the leased facilities and does not require significant capital investments for its development. The principal use of the attracted funds is the investment into the working capital that is applied towards paying the leasing expenses of the new facilities and the purchase of the inventory for the placement in the stores. In the current circumstances of the economic crisis long-term lease agreements feature bargain rates, and the access to the additional funds will allow the network to develop faster than its competitors. Another important factor for West Ost Union would be the technical support required for the achievement of the clearer design of the business processes, which will contribute to the reduction of costs. The retail markup on the children’s’ goods is limited by law of Belorussia, therefore the competitive advantage can be obtained by the networks that can minimize their costs by assuring a clear flow of logistics and by taking advantage of the economies of scale. 

As of 2008 the share of the network on the market of children’s goods of Belorussia was about 5%. By 2013 it is expected to open additional 25 stores (currently there are 12), which would double the market share of West Ost Union. The Belorussia’ s market of children’s goods is highly clustered, it doesn’t have any players who would dominate the market. The fact of participation of EBRD in the capital of West Ost Union does not rule out the possibility of providing further additional loans for the development, both directly and through the Belorussian agent banks. 

The main share of the EBRD’s investments in Belorussia is made via two strategies: financing of small and medium businesses through agent banks and investments into the consumer sector. 

Previously the share of relatively small-sized retailers of the Belorussian market was growing rapidly (during 2002-2005 from 5,8 to 10,1%). This sector remains fairly attractive both from the perspective of the development opportunities and the increase of the value of business, as well as from the point of view of reaching the main objectives of EBRD.