We invest in Ukraine: NEQSOL Holding

We invest in Ukraine: NEQSOL Holding

Volodymyr Lavrenchuk, Regional Director of NEQSOL Holding Ukraine: "We see Ukraine as a growing market. Its assets are undervalued due to the high risks of transformation and the prolonged ...

Information about the investor

Company name: NEQSOL Holding - https://www.neqsolholding.com

Fields of activity: oil and gas, telecommunications, high-tech (IT), construction.

Founded: 1990

Founder: Nasib Hasanov

Headquarters: Azerbaijan (Baku)

Global representation: United Kingdom, USA, Turkey, Azerbaijan, Kazakhstan, UAE and others.

NEQSOL Holding Global Performance (2021):

- Number of employees - 13,000

 In the oil and gas industry, the NEQSOL Holding group of companies includes Nobel Oil Services (UK) Limited and Nobel Oil E&P (UK) Limited (trade name Nobel Upstream) registered in the United Kingdom. The geography of Nobel Upstream, headquartered in London, covers the United Kingdom, the USA and Azerbaijan. Subsidiaries of Nobel Oil Services (UK) Limited operate in such countries as Azerbaijan, Turkey, Kazakhstan. The Group has established joint ventures with international companies such as KCA Deutag, Wood Group and others.

On the construction market, NEQSOL Holding is represented by Norm, the largest cement producer in the entire Caucasus region.

In the telecommunications industry, the group includes companies providing mobile communication services, international transit and wholesale Internet sales, leased line services, data center services, and others. In December 2019, NEQSOL Holding completed the purchase of Vodafone Ukraine, and at the end of 2020, in connection with plans for further business development in Ukraine, the holding opened a representative office in Ukraine. Since 2020, the group has been implementing a project to create a Digital Silk Road between Europe and Asia.

NEQSOL Holding in Ukraine

NEQSOL Holding has completed several landmark M&A deals in Ukraine over two years. In 2019, NEQSOL bought Vodafone Ukraine for $848 million, and now is closing a deal of a decade in the industry, buying Ivano-Frankivsk Cement Plant, according to experts, for $300-400 million.

The holding is already preparing new agreements, says Volodymyr Lavrenchuk, regional director of NEQSOL Holding in Ukraine and ex-head of Raiffeisen Bank Aval, but details have not yet been disclosed.

When Vladimir Lavrenchuk headed the Ukrainian office, he noted: "In my new role, I will focus on finding investment projects and new solutions for the holding in Ukraine, a market that is promising for such a strategic investor as NEQSOL Holding."

What attracted the Azerbaijani investor to the Ukrainian market, what industries are they focused on investing in, and will the escalation of the conflict with Russia become a reason for changing the strategy?

How would you briefly describe NEQSOL Holding?

NEQSOL Holding operates in eight markets with over 30 companies and over 13,000 employees. The business structure rests on three pillars: oil and gas, telecommunications, and the building materials market.

In the direction of telecommunications, the holding includes the companies in Azerbaijan Bakcell and Azerconnect, and acquired in 2019 Vodafone Ukraine.

As for building materials, the holding includes the largest cement producer in the South Caucasus, set up less than 10 years ago.

What objects are of interest to NEQSOL Holding in Ukraine?

The holding actively invests in the latest technologies in various industries. Each of the industries in which we are present has its own expansion. For example, mobile communication is overgrown with other activities. We hear more and more about creating ecosystems with the participation of mobile operators. NEQSOL is also interested in this, because Vodafone Ukraine has more than 18 million customers. Obviously, the creation of an ecosystem that includes e-commerce, financial instruments is very promising.

In emerging markets, there are good assets in well-known and new industries for the holding. Opportunistic strategy is like being in the right place at the right time. In such cases, managerial experience and the ability to manage risks in rapidly changing markets are very important. In this, NEQSOL Holding has a very good experience and perspective.

If we talk about the prospects for investment in Ukraine as a whole, we obviously see a boom in the rapidly developing IT industry - in the first half of 2021 alone, there were transactions worth almost $ 200 million in this industry. Traditionally, investors are interested in the agricultural business, logistics, and metallurgy and extraction of raw materials for it.

For what purpose NEQSOL Holding is buying companies? For resale?

NEQSOL Holding is a strategic investor. We assume the acquisition of companies as the main factor in expanding business opportunities, in which the holding company has deep expertise and deployed capacities. The holding enters new companies for development purposes.

The holding's investment capital is based on combining its own and borrowed resources from international borrowing markets. We cooperate with top international banks to acquire and develop companies in new markets, including Ukraine.

What is the investment limit of NEQSOL Holding in Ukraine?

Usually the question is not about the limits for some country. There are project competitions, so the “investment limit”, or investment horizon, in a particular country depends on it. This adds drive to look for effective projects, to argue them well.

Argumentation, risk analysis, performance evaluation - this is also a kind of competition between companies in different countries. Today, NEQSOL Holding is one of the largest international investors in Ukraine, but the most important thing that we can already see is that our investments here are really effective and that is why they are growing further.

The holding directs more investments to Ukraine than to Kazakhstan and Uzbekistan. What are the advantages of our country?

Kazakhstan and Uzbekistan are very competitive markets. How is our country different? There are global industries inherent in Ukraine. For example, agribusiness. In particular, Ukraine is one of the three largest suppliers of grain and oilseeds in the world.

There are other industries – IT, innovations, technologies. If you look at the statistics, the largest amount of investment was in the IT industry, which I have already mentioned. In the first half of 2021 alone, there were about 10 acquisitions in this industry. Ukraine is among the top five countries with the largest production of IT services, and positions are growing.

Another factor: Ukraine is a growing market, but due to high risks of transformation and prolonged military conflict, its assets are undervalued. Their price is likely to increase significantly over time, when the transformation of the economy and social life gains qualitative changes. This likely upside is an important factor in assessing the return on investment for those who believe in Ukraine, know it and influence the development of the country with their investments.

Can we expect an investment boom in Ukraine in 2022?

Obviously, in the last two years, due to the pandemic and quarantines, the estimates and trends of the investment market have been violated. If we look at the statistics of foreign direct investment and M&A in 2019-2021, we see very high volatility. Ukraine is part of this process and in 2020 faced an outflow of investments. In 2021, the dynamics are already positive - more than $6 billion in foreign direct investment has come.

Does this indicate a general positive mood among investors? Yes. Will this growth be permanent? No. The news of recent weeks may have temporarily narrowed the investment outlook. However, we understand the level of risks and we can deal with them.

Did the news about the escalation of the conflict with the Russian Federation become a reason for revising the holding's strategy in Ukraine?

In large holdings, the events of two or three weeks are unlikely to change the strategy. This risk will hopefully close soon. The Holding perceives risks in Ukraine as manageable, and our strategy for Ukraine does not change. As for tactics: the news affects certain transactions that are already in progress. We may postpone or suspend work for several weeks in certain agreements, because the partners adapt to the new conditions.

What other risks, besides the conflict, do you see for investors in Ukraine?

There are risk ratings collected by the business community. For example, the European Business Association and the American Chamber of Commerce. At the top - the imperfection of the judicial system and corruption. In my experience, after working in a foreign bank for a long time, reforms in the administration of many processes and internal reorganization of many companies have significantly improved the legal status of agreements. The reliability and qualification of contracts has grown, guarantees and guarantees have appeared, the drafting of contracts has improved, which reduces litigation risks.

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