Standard Bank Principal Investment Management

Prospects for Alternative Investments in Emerging Markets

2009

2

Standard Bank: Principal Investment Management (PIM)

Standard Bank is a global emerging markets bank headquartered in South Africa. It is the largest bank in Africa present in 17 countries throughout the continent and a further 16 countries outside of Africa including strategic relationships in Russia, South East Asia and China. The Group has total assets of $162bn (Dec-08) and employees of circa 50,000

The PIM division is responsible for Standard Bank’s investing activities in emerging market private equity and alternative investments. It has over US$3.3bn of AUM and is organised into 4 business areas:

Private Equity: AUM $1.1bn – proprietary investments and joint venture funds Debt Funds: AUM $700m – FMFM brand covering EAIF, GuarantCo and CMDF Real Estate: AUM $1bn – joint ventures and strategic asset management Distressed Debt: AUM $500m – portfolios and single credits

Total team size over 150 staff located in London and target markets

Core geographies/regions in line with the SBG geographic footprint : Africa, South Africa, Nigeria, Turkey, Brazil, Russia, Islamic Asia, GCC and SE Asia

Unique relationships with DFIs and Donor Groups who are stakeholders or investors in funds, including: DFID, SIDA, SECO, DGIS, FMO, DEG, DBSA, KfW, IFC, ADB, IDB, AfDB

3

Standard Bank: Private Equity

PE Funds under management exceed US$1.1billion

Proprietary activity of $700m with local teams in SA, Nigeria, Brazil, Turkey, Russia

JV managed funds with third party capital of over $450m including:

South East Asia Strategic Assets Fund - $150m – investing in infrastructure

Islamic Asia Infrastructure Fund - $262m – investing in infrastructure

GCC Energy Fund - $67m – investing in power and energy

Deal sizes up to $50m of equity, typically minority shareholdings and exits in 3-5 yrs

Target sectors include:

Fast Moving Consumer Goods

Retail

Specialised manufacturing

Non-bank financial services

Infrastructure, including: power, transportation, PPPs, telecoms, logistics and associated industries

Resources, including: mining and oil/gas

4

Standard Bank: Debt Funds – Frontier Markets Fund Managers (FMFM)

FMFM - is a division of Standard Bank Plc and is the main adviser to the Emerging Africa Infrastructure Fund and to GuarantCo.

FMFM currently has over $700 million of AUM and a team of 12 based in London

Emerging Africa Infrastructure Fund (“EAIF”): $500 million dedicated debt fund for sub-Saharan Africa Provides long term debt and mezzanine financing for privately owned infrastructure projects Capitalised by 5 European government agencies, 3 DFIs and SBG and Barclays Lend up to 15 years and $40 million per transaction 20 transactions to-date covering power, telecoms, transport, water, infrastructure within mining

GuarantCo: $200 million fund which provides credit enhancement for local currency debt issuance by private, municipal and parastatal infrastructure sectors in all low income countries

Provides partial credit and risk guarantees

• Cover for senior, mezzanine or capital markets instruments; maturity extensions, coupon or principal strips

In progress- SSA Debt Capital Markets Development Fund: US$200 million Fund investing in a range of private debt instruments in Africa, ie a mix of African corporate debt securities, issued in both local and hard currencies 

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Why EMs - Generally

Too big to be ignored BRICs and Turkey, ME, SA, Nigeria, Malaysia, Indonesia sizeable share of global GDP Increasing share of global alternative investment Large, young, growing and urbanising population

Growth in disposable income and middle classes High relative GDP growth External debt as a percentage of GDP has fallen improving sovereign credit worthiness and encouraging

investment. Growth has been driven by significant increases in consumer spending and domestic investment. Consumer focused businesses including fast moving consumer goods, retail, specialised manufacturing, IT,

leisure, media and financial services all experiencing strong growth

Improving operating environment Highly qualified business leaders often with developed world experience Improving liberalisation, governance, legal systems, sanctity of contract and market conditions

Increased exit opportunities and ability to achieve downside investment protection Increased trade sale opportunities with increasing interest from global players in emerging markets Improved liquidity in local stock markets

Natural resources and Infrastructure Substantial deposits of natural resources supported by strong demand from global economies Acceptance of the importance of infrastructure to grow and need for governments to engage with private

sector

6Why EMs – Fund Raising and Investment

Source: EMPEA

20x increase in funds raised in 5 years – helps fuel growth

62% of LPs anticipate expanding or maintaining commitments to EM PE in 2009

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Why EMs – Investment and Fund Raising

Investment Fund Raising

Year 2007 2008 2007 2008

Western Europe 132,608 75,000 152,000 105,700

US 105,720 NA 325,800 265,600

Asia (incl. JANZ) 41,506 46,911 34,734 46,869

Asia (ex-JANZ) 30,370 28,270 28,668 39,660

Latin America 8,017 6,962 4,419 4,461

CEE/CIS 8,345 6,344 14,629 5,559

Africa 3,362 5,252 2,340 3,218

Middle East 3,500 1,007 5,027 5,898

Emerging Markets 50,480 47,835 59,160 66,517

Global 638,614 NA 543,026 445,026

Source: EMPEA

• EM receive less than 10%-15% of global PE investment and fund raising• Underinvested and misunderstood market = opportunity• Developed markets also have severe overhang of excess funds not invested

<9%

<1%

8Why EMs – PE Investment/GDP (2007)

Source: EMPEA

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

PE in

vest

men

t/G

DP

(%)

Heavily under penetrated Expect this to change in next 5 years PE will become a well adopted product in the EM financial tool kit

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Index One Year Three Year Five Year

Emerging Markets VC & PE (31.81) 4.69 11.83

Latin America & Caribbean PE (13.93) 13.26 14.96

Asia (ex Japan) PE (32.21) (0.76) 4.19

CEE & Russia PE (35.16) 15.52 28.37

MSCI Emerging Markets (53.18) (4.62) 8.02

US VC (16.53) 4.13 7.06

US PE (24.2) 2.58 10.99

Western Europe PE (39.64) 10.02 18.36

S&P 500 (37.00) ( 8.36) (2.19)

Why EMs – Net Returns (as of 31-12-2008)

Source: Cambridge Associates LLC Proprietary Index: pooled end-to-end returns, net of fees, expenses and carried interest.

Competitive and compelling returns – definitely not a “black box”

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Why EMs - Survey - Risk Premiums, LP Country Rankings and 2009/10 Funding Outlook

LP Risk Premium

Vs Developed Mkts

LP Rankings

Next 12 months

Increase/decrease in LP

Funding

China 6.4% 1 Flat/Down

India 6.4% 3 Flat

Brazil 6.4% 2 Up

CEE (inc Turkey) 6.4% 4 Flat/Down

South Africa 7.0% 7 Down

Middle East 7.3% 8 Down

Latin America (ex Brazil) 7.5% 5 Down

Russia/CIS 8.4% 9 Down

Sub-Saharan Africa (ex S. Africa) 8.4% 6 Down

Source: EMPEA/Coller Capital

77% of LPs expect EM returns to be greater than 16% net (>20% gross) LP assessment of risk has gone up for all markets except Brazil Actual risk lower than perceived risk in EM leading to lower competition and higher valuations Turkey, Brazil up in rankings and Russia down

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Looking to the Future…………but First a glimpse at Global PE pre ‘the Crisis’

1. Abundant capital, easy capital raising, plentiful first time funds, numerous multi-billion dollar funds

2. Mega deals order of the day, many deals of more than $5bn completed

3. Aggressive debt deals, easy covenants, huge gearing, Debt/EBITDA multiples >6x

4. High valuations/prices paid and received thus high IRRs

5. Great exit multiples (EBITDA multiples of >10x) and numerous exit alternatives

6. Regular fund distributions to investors

7. Buyouts and BRICs in vogue - LPs increase allocations to PE

8. New themes emerge: green, renewable, infra, resources, Islamic

9. New geographies, products and investors arrive – Africa, mezzanine, SWFs

10.Private equity remains private

1. Besides BRICs EMs never had abundant capital

2. Deals typically less than $1bn

3. Leverage less of a factor in deal structuring

4. Valuations also high but more reasonable

5. Exit multiples also high

6. Reasonable but relatively lower distributions

7. Increased allocations to EMs

8. On the fringe of new themes

9. Classic PE model applies, few new products lots of new investors

10. Ditto

Global Markets Emerging Markets

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After the Crisis…………what is happening

1. Global deal values down from $600bn in 2007 to $250bn in 2008

2. Deal sizes down and fewer deals coming to market

3. Focus becomes value preservation of existing investments

4. Commitments to new funds down significantly but uninvested capital over $1 trillion

5. Fund distributions down over one yr by over 75%

6. Reduced prices, more credible valuations

7. Negligible debt, tougher terms, Debt/EBITDA multiples tumble

8. Fund returns crash, write-offs and write-downs resulting from mark-to-market takes its toll

9. Less opportunities for exits, $30bn of pulled exits

10. Investeee companies run into trouble – earnings and cashflows hit, financing challenges, need for more capital

1. Deal values down but not as drastic

2. Deal sizes marginally impacted but fewer deals being done

3. Value preservation of existing investments key

4. Commitments to new funds down significantly

5. Fund distributions down

6. Reduced prices, credible valuations

7. Acquisition leverage less important

8. Fund returns less impacted by mark-to-market

9. Less exits

10. Investeee companies less impacted as lower leverage

Global Markets Emerging Markets

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Emerging Market Themes to Come……of many………………….

Infrastructure is one of the fastest growing sectors for PE funds focused on EMs

− Estimates are that up to $2 trillion needs to be spent annually on infrastructure in EMs over the next few years (BRICs account for most of this).

− PE fund raising for infrastructure in EM grew from $3.4bn in 2007 to $8.4bn in 2008 and is projected at $20bn for 2009/10 (in developed markets it fell by 26% to $20bn)

− Less than 15 dedicated EM PE Infra funds and possibly 100 in western markets

− Governments need the private sector to make projects happen therefore PPPs on the up - consequently operating environments also improving

− Risk adjusted returns <20%

Debt and Mezzanine Funds

− Availability of long term and structured debt very limited at present and local currency funds non-existent

− Few debt/mezzanine funds operating in EMs – they are small <$200m and probably less than 10 in number

− Demand for non-dilutive, sub-ordinated capital, local currency funding and longer tenors extremely high

− Particular emphasis on growth capital for mid-sized corporates

− Risk adjusted returns of 12%-20% depending on nature of mezzanine vs senior debt

− Fee structures not as aggressive

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Emerging Market Themes to Come……of many………………….

Africa

− GDP growth of 5-7% since 2001, 2009 forecast at 2% rest of world declining by 1.3%.

− 25 yrs ago 3 democracies, today over 40

− Improved governance, economic and central bank management

− National debt down from 80% of SSA GDP to 23% in 2008 – so debt cycle broken and GDP freed up for investment and consumption. Improved sovereign credit worthiness and encouraging FDI

− Assisted by improved commodity prices in a commodity rich region

− Trade has a huge impact. In 1995 $4bn exported to BRICs and in 2007 $48bn – laying foundation for investment and growth

− Africa has huge infrastructure needs - SSA for example only generates as much power as the whole of Spain – infra financing gap is over $30bn

− Key target countries: Nigeria - World’s 41st largest economy 2008 GDP of US$214 billion Population exceeding 140 million (highest in Africa) World’s 8th largest exporter of petroleum and founding member of OPEC

South Africa - World’s 32nd largest economy 2008 GDP of US$277 billion Population of 48 million Developed financial system

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Emerging Market Themes to Come……of many………………….

Islamic Funds

Enormous investor liquidity for both equity and bespoke debt products

Growth driven by world's 1.2bn Muslims seeking investments that comply with beliefs

Over 50 countries are members of the Islamic Development Bank

300 Islamic banks and investment firms

Potential size of the Islamic PE industry could exceed $40bn by 2011

Estimated that Islamic banks will hold 40%-50% of Muslims’ savings in 10 years

Shariah compliance for PE investment less complex than perceived

Target countries: GCC, Kazakhstan, Nigeria, North Africa, Pakistan, Indonesia, Malaysia

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Conclusion

Whilst allocations are being cut globally EMs will become more relevant as a home for alternative investment – investors will allocate more to the sector

BRICs may dominate but second tier countries will become increasingly prevalent

Besides pure private equity expect more distressed, mezzanine and debt funds

Once the post crisis dust has settled and global recession resides expect scaling up by financial institutions and fund managers of EM PE expertise

Debt will remain tough to come by in EMs as with developed markets but will not stop deals happening

Great buying time prevails