East Capital Russia

This was largely driven by the performance of our Kazakh names, with Kaspi down 9% as tech names sold off towards the end of the year. But Kazatomprom returned +3.4%, as talk of a nuclear renaissance picked up, with Google and Microsoft expressing interest in nuclear projects for their power-hungry AI data centres. For 2024, the indicative NAV rose by 21.3%. 

The current indicative NAV as at 31/12/24 is USD 77.8m. Based on our valuation approach, which essentially values all holdings and cash in Russia at zero, the fund is made up of cash, liquid Kazakh names and a few GDRs that trade OTC or elsewhere (Polymetal and Globaltrans now trade in Kazakhstan, for example). 92% of this NAV is in cash or liquid Kazakh names. This breaks down to USD 46.0m in cash (held in Europe) and USD 25.8m in liquid Kazakh names.  

During the quarter, we continued our efforts to return capital to shareholders by way of distributions. The various regulatory approvals required have taken considerably longer than expected, and we have still not received approval to circulate the shareholder notice in relation to this distribution. We continue to work actively on this and will update our shareholders when we have further information.  

While we remained very active in evaluating potential bids for our remaining positions, we did not make any trades during the period. This is largely because we have sold the vast majority of positions where we have been able to, i.e. the ADRs and GDRs that were incorporated and traded offshore and are now traded on an OTC basis. An interesting development has occurred, as some of our offshore-traded and incorporated entities have relocated their listings to Kazakhstan, where they can trade freely. These include Polymetal, Globaltrans and Fix Price. We are therefore working on moving our holdings into Kazakh custody so that we can trade them. Like many things related to Russia, this is a highly manual and complicated process, but the bids we are seeing suggest a better price than the OTC market, which makes it worth doing.

Performance in USD.

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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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