Renaissance R.I.E. RIEL Interim Management Statement

  Renaissance R.I.E. (RIEL) - Interim Management Statement

RNS Number : 2610R
Renaissance Russia Infra Equities
15 November 2012


                         Interim Management Statement

           Review of the period from 1 July 2012 to 8 November 2012

This interim management statement relates to the period from 1 July 2012 to  8 
November 2012  and  contains  information  that  covers  that  period,  unless 
otherwise stated.

Investment Objective, Policy and Strategy

The overall investment objective of Renaissance Russia Infrastructure Equities
Limited("RRIEL"  or  the   "Company")  is  to   achieve  medium-term   capital 
appreciation. The Company seeks to achieve its investment objective primarily
by allocating  substantially  all  of  the  Company's  capital  available  for 
investment to equity  and equity-related securities  of companies involved  in 
the infrastructure sector and whose principal operations or assets are located
in Russia and the CIS Region, or a material part of whose business relates  to 
Russia and the CIS Region.

Review of the Portfolio

The Company's net assets increased during the period from $121.87m to  $128.2m 
representing an increase  of 5.2%, which  compares to an  increase in the  RTS 
Index of 3.9%  and 3.1%  increase in  the RTS2  Index. As  such the  Company's 
portfolio outperformed  both the  large  cap and  mid  cap equity  indices  in 

Unlike  in  recent   years,  equity  markets   globally  registered   positive 
performance over  the summer  months, although  the biggest  positive  monthly 
performance came in September on the back of co-ordinated quantitative  easing 
action around  the world.  The European  Central Bank  made the  first  move, 
committing to 'unlimited' purchase of  bonds issued by Euro zone  governments. 
This was followed by the Federal Reserve's announcement of its so called  QE3 
programme in mid-September, which would involve monthly purchases of  Mortgage 
Backed Securities (MBS) to the value of  $40bn, in an effort to keep  interest 
rates low  and  stimulate economic  growth  by helping  re-invigorate  the  US 
housing market.

Closer to home, the Russian economy continued to grow robustly with GDP growth
of approximately 3.7% for the year to date in 2012. Unemployment remains  low 
at around 5% and inflation  continues to be under  control, both of which  are 
favourable for  equity  markets in  general.  However, more  importantly  for 
infrastructure spending, is  the fact that  the Russian Federal  budget is  on 
track to stay in surplus during 2012. For the first nine months of 2012,  the 
budget surplus amounted to 1.9%  of GDP and is forecasted  to end the year  at 
0.5-1.0% of GDP, which provides continued support for the Russian Government's
spending on large infrastructure projects.

Turning to the Company's portfolio, the biggest contributors to the  Company's 
outperformance of the Russian indices during the period were Sollers,  Eurasia 
Drilling, Transneft and Mostotrest.

Sollers is the largest independent car manufacturer in Russia and the  company 
has a number of JVs with foreign auto makers, who are seeking to gain exposure
to the fast growing Russian market. Sollers share price appreciated 74%  over 
the period under review, driven by the strong results reported by the  company 
for the first half of 2012. Profit margins improved by more than 30%,  driven 
by its new JV with  Ford Russia. The Company  believes that this venture  has 
far better prospects than Sollers' old JV with Fiat, as Ford is a strong brand
in Russia  having  been operating  in  Russia for  over  10 years,  hence  the 
improvement in EBITDA margins. We continue to be supporters of Sollers  based 
on its  fundamentals  as the  stock  continues  to trade  at  very  attractive 

During the period, exposure to the Oil & Gas distribution and services sectors
was increased through additions to the Company's holdings in Eurasia  Drilling 
and Transneft. Eurasia Drilling, which has  been held since the beginning  of 
2012, continues  to perform  strongly.  Although Russia  is the  largest  oil 
producer in the world,  its oil reserves  are some of  the lowest amongst  the 
major oil producers, which means oil  companies (both state and private)  need 
to be investing substantially in the discovery of new oil and gas fields.  As 
a result, oil drilling volumes (in  km) in Russia is growing at  approximately 
7-8% annually.  Eurasia Drilling,  one of  the leading  oil drillers  in  the 
sector, with high  quality business execution  and transparency, is  achieving 
growth of approximately 15% per annum. As a result, the company's share price
appreciated by 36% during the period under review, contributing  substantially 
to the  Company's  performance.  While  we  are  conscious  of  the  elevated 
valuation, we  continue to  believe  in the  underlying fundamentals  for  the 
company. In the case of Transneft, the company is approaching the end of  its 
extensive CAPEX program and from the start of 2013, expenditure on maintaining
and expanding its assets is likely to start declining. As a result, its  free 
cash flow is expected to increase significantly leading to a re-rating of  the 
stock as already witnessed, with  the company's share price outperforming  the 
RTS Index by 32% over the last few months. Despite this, Transneft's valuation
remains depressed, trading on  a EV/EBITDA 2012 multiple  of just 2x which  is 
considerably below the  average for  the Russian  Oil &  Gas distribution  and 
services sector of 3.5x.

In contrast to  the first  half of 2012,  the real  estate development  sector 
negatively impacted the Company's performance  during the period, despite  the 
Company reducing its exposure  to the sector early  on in the period.  Having 
benefited strongly from the sector's strong performance earlier in the year as
sales grew strongly, the  sector has seen a  meaningful slowdown in demand  in 
the second half of  the year, which  has had a knock-on  impact on prices  and 
therefore revenues. The Investment Manager  was able to confirm the  sector's 
deteriorating fundamentals at the VTB conference  in October 2012 when it  met 
all the major developers.  The Company's exposure to  the sector was  reduced 
during the period, with the Company's investment in the LSR Group being exited
in full and its holdings in Etalon and PIK being reduced.

FESCO and HMS  Group were amongst  the biggest detractors  from the  Company's 
performance during the period  under review. FESCO declined  by 17% over  the 
period, wiping of the gains made in the first half of the year, as uncertainty
over shareholder control of the company,  with Summa Group having expressed  a 
strong desire to acquire a 56% stake in the company from Industrial Investors,
headed by Mr Generalov, impacted the  company. However, the deal was  delayed 
due to  financing problems  for  the Summa  Group  and that  disappointed  the 
market, pushing the share price lower. In the case of HMS Group, the  company 
acquired a centrifugal and screw compressors company, paying a relatively high
price for the company, which resulted in the shares being sold off.

Looking ahead, a number of challenges  for the world economy remain in  place. 
Economic growth remains subdued in both the US and Europe and Asia is one  of 
the few  bright spots.  It is  therefore not  surprising that  we are  seeing 
Russian companies increasingly announcing projects  focused on Asian ties,  as 
the recent experience with Gazprom showed. This has positive implications for
the Russian Infrastructure sector. The development  of the new gas fields  of 
Chayanda and Kovytka will  involve significant investments in  infrastructure, 
construction of  an  LNG terminal  in  Vladivostok  and a  3,200km  Yakutia  - 
Khabarovsk  -   Vladivostok  gas   pipeline.  Total   investments   including 
development costs could reach $40-60bn by 2018, which will have a  significant 
positive impact on pipe and metal producers. This should also benefit some of
the  Company's  less  liquid   investments,  including  Spetsgazremstroi   and 
Centrenergogaz  to  name  a  few.  In  addition,  we  continue  to  see  good 
opportunities across other  sub-industries within  the infrastructure  sector, 
including transportation and roads construction.


During the period  from 1July  2012 to 8  November 2012,  the Company's  share 
price rose from $0.46 to $0.54, an increase of 17.4%. The Company's  discount 
to its net asset value fluctuated significantly during the period but as at  8 
November 2012, the Company's discount to its net asset value was 15.4%.

Share Capital

No changes to the Company's share  capital took place during the period  under 


                                   1 July 2012 8 November 2012
Net Assets                             $122.7m         $128.2m
Net Asset Value Per Ordinary Share      $0.616        $0.64399
Share Price                           $0.46375          $0.545
Discount to Net Asset Value              24.7%           15.4%


Ten largest holdings:                 % of Total Assets
Mostotrest                                         7.4%
Renaissance Russian Equity Allocation              6.5%
Raven Russia                                       5.9%
Transneft                                          4.3%
Novorossiysk Commercial                            4.2%
Eurasia Drilling                                   4.1%
Globaltrans                                        4.1%
Transneft                                          4.3%
Aeroflot                                           2.9%
E.On Russia                                        2.8%

Sector breakdown:    % of Equity Positions
Transport                            19.2%
Beta Management                      16.1%
Construction                         13.6%
RE Development                        9.4%
Utilities                             9.1%
Oil&Gas Distributors                  8.3%
Oil services                          7.0%
Steel                                 5.7%
Engineering                           5.0%
Telecom & IT                          3.0%
Building Materials                    2.2%
Mining                                1.4%

Material Events during the period

During the period  the board  of the  Company announced  on 20  July 2012  its 
intention to restructure the  Company, which would result  in the transfer  of 
the majority of the Company's portfolio of investments to a newly incorporated
open-ended UCITS fund (the  "UCITS Fund") (the "Transfer")  that will have  an 
investment  objective  and  policy  consistent  with  the  current  investment 
objective and policy of the  Company. On 11 October  2012, the Company sent  a 
circular  to  shareholders  ("Circular")   which  contained  details  of   the 
recommended proposals for the restructuring  of the Company and amendments  to 
the Company's investment policy and articles of incorporation, together with a
notice of extraordinary general meeting ("EGM") to approve the proposals.  At 
the EGM held on 31 October 2012 shareholders voted in favour of the proposals.
As a result and  as set out  in the Circular, the  Company will transfer  its 
liquid investments to the  UCITS Fund in  return for units  in the UCITS  Fund 
("Units"), which is expected to occur on or before 30 November 2012, following
which the Company  will hold,  inter alia,  Units in  the UCITS  Fund and  its 
holdings in illiquid investments  which will not be  transferred to the  UCITS 
Fund but  will be  retained and  realised  in a  structured programme  by  the 
investment manager. In addition, as set out in the Circular, the Company,  on 
or before 14 December, intends  to declare an in  specie dividend of Units  to 
shareholders representing 30% of the Company's net asset value at the date  of 
declaration of  such  dividend, and  as  a  result, following  the  in  specie 
dividend, shareholders will hold both shares and Units.

                     This information is provided by RNS
           The company news service from the London Stock Exchange


IMSBUBDBDDBBGDU -0- Nov/15/2012 15:23 GMT
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