East Capital Russia

This was primarily down to the performance of our largest holding, Kaspi, which returned -16.6% due to a short-selling report that accused the company of having high (and undisclosed) exposure to Russia, as well as having facilitated money laundering. Most of the claims were demonstrably false, but the damage was done. Kaspi continues to grow earnings by more than 25% annually and remains an attractive investment, with a forward P/E of 7.5x. Even after the sell-off, the stock has returned 19.8% year-to-date.  

The current indicative NAV as of 30-09-24 is USD 80.8m. Based on our valuation approach, which values all holdings and cash held in Russia at essentially zero, the fund comprises of cash, liquid Kazakh shares and some GDRs that trade OTC or elsewhere (for example, Polymetal now trades in Kazakhstan). 91% of this NAV comprises cash or liquid Kazakh names. This breaks down into USD 45.8m of cash (that is held in Europe) and USD 27.6m in liquid Kazakh names.

We continued to work on our proposal to distribute our currently available cash to unitholders and we hope to be able to share an update on our progress before the end of the year. 

While we remained highly active in evaluating potential bids for the remaining positions we have, we did not make any trades in the period. This is largely because we have sold the large majority of positions where we are able to, i.e. the ADRs and GDRs that were incorporated and traded offshore and now trade on an OTC basis. 

Performance in USD.

The content on this page is marketing communication. Investment in funds always involves some kind of risk. Past performance is no guarantee for future performance. Fund units may go up or down in value and investors may not get back the amount invested. This publication is not directed at you if we are prohibited by any law in any jurisdiction from making this information available to you and is not intended for any use that would be contrary to local laws or regulations. Every effort has been made to ensure the accuracy of the information, but it may be based on unaudited or unverified figures or sources. 

What does the suspension of dealing on East Capital Russia fund mean for clients?​

It means that clients will neither be able to place orders nor redemptions in the funds until further notice. Subscriptions will be returned to investors whereas redemptions will be processed at the next available dealing day, unless cancelled by the redeeming investor during the suspension period.

Can clients place an order?​

No, the East Capital Russia fund is suspended, and no orders can be placed nor executed upon.

What are you doing now and will you reopen East Capital Russia fund? 

We are an active asset manager, and our focus is on fulfilling our fiduciary duty and acting in the best interest of our clients. It is our responsibility to reduce losses as much as we can and try to create better returns than the market. During this difficult and challenging time, we are focusing all our efforts to deliver the best possible result we can for our clients. This work takes place through dialogue with other market participants, advocacy work to enable the opening of the Russian stock exchange for foreign investors, and where possible, carrying out portfolio sales where we judge that the price is reasonable.​

We are actively assessing and managing actual occurrences as they unfold. Our focus is to act in our client’s best interests, and we will open up for trade as soon as market conditions allow it.

Is there a risk that the Russian state will confiscate shares in the Russia fund? Is there any risk that the Russian state will confiscate private small savers' holdings in Russian shares?

Since February 2022, Russia has adopted several decrees restricting transactions involving foreign investors’ share holdings in companies incorporated and listed in Russia. On-shore holdings of investors from “non-friendly” countries such as ourselves have been frozen since February 2022 and blocked in “s-accounts”. In most cases such transactions now require approval from a special governmental commission, and there are some companies in which we are not allowed to trade at all, as they are on the list of “strategic entities” in Russia.

In addition, on 16 July 2023 Russia signed a decree according introducing the concept of “Interim Administration”. By this Decree shares in companies such as the Russian divisions of the brewing company Carlsberg and Danone held by foreign companies were transferred to the Federal Agency for State Property Management. Formally any assets under control of persons associated with “unfriendly” states can be targeted by the Interim Administration mechanism, but the expectation is that this mechanism is likely to affect only some big foreign businesses.

Given East Capital’s strong commitments to ESG, how do you view the war in Ukraine?​

The current situation in Ukraine is an act of war, which we condemn as we fully support the independence and sovereignty of Ukraine. The immense human suffering and civilian losses the invasion has already created is obviously an ESG / SDG issue investors cannot ignore.

How do you see your holdings in Russia State-owned enterprises (SOEs)?​

State-ownership Russian portfolio holdings represent a big challenge for us as we condemn the Russian act of war on Ukraine, and we fully support Ukraine and its independence. However, in the current market condition, even if we wanted to, we cannot sell these holdings.​

For many years we used our power, as responsible shareholders, to push large Russian emitters, including oil and gas companies, to improve corporate governance and encourage them to reduce GHG emissions which they have done to some extent. We have now suspended all this work with Russian companies as we condemn the war. However, we believe that just selling these holdings at any price is not a responsible exit for our investors.

2022-04-01

The merger of the Funds East Capital Balkan, East Capital New Europe, East Capital Russia and East Capital Eastern Europe with East Capital Balkans, East Capital New Europe, East Capital Russia and East Capital Eastern Europe (respectively) has been carried out in accordance with the submitted merger plan, which was approved by Finansinspektionen (the Swedish Financial Supervisory Authority) on 15 February 2022.

East Capital Balkans, East Capital New Europe, East Capital Russia and East Capital Eastern Europe thus ended on 1 April 2022.

Following the merger, former shareholders in East Capital Balkan, East Capital New Europe, East Capital Russia and East Capital Eastern Europe now own shares in East Capital Balkans, East Capital New Europe, East Capital Russia and East Capital Eastern Europe.

More information about the merger, such as the auditor's opinion on the exchange relationship, can be obtained from the management company East Capital Asset Management S.A. upon request.

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