EBRD Quietly Buys 17% of Kalina

The Smolensk Regional Investment Fund, established by the European Bank for Reconstruction and Development, has been revealed as the secret, third shareholder that last month snapped up a 16.7 percent stake in Kalina, the nations No. 1 perfumes and cosmetics holding

The move means that the bank can place its third representative on Urals-based Kalinas seven-person board. The EBRD has promised that it will minimize the companys risks and float its stock on the worlds financial markets.

On Oct. 11, Kalina placed an additional share offering of 1,735,030 ordinary shares in the space of one day and entirely for hard currency. With a face value of 10 rubles (36 cents), the actual value of the shares was $5.80. The issue saw Kalina $9 million better off, and the value of the company was boosted to about $54 million.

The announcement regarding the banks purchase was made by Casper Heijsteeg, senior investment manager with the EBRDs Urals Region Venture Fund, at the Investment Opportunities in the Urals Region conference, held in Yekaterinburg.

A source in the EBRD said the bank participated in the deal only in a legal capacity.

Representatives of RABO Black Earth B.V. (Voronezh) and GIMV/CORTEQ Urals Region Venture Fund (Yekaterinburg) had been included on the Kalina board of directors before the issue. Now the Smolensk Regional Venture Fund will also participate.

"Funds normally try to purchase quite significant blocks of shares in order to influence the activities of the company," said Andrei Abramov, a utilities analyst with NIKoil.

Regional venture funds are one of the EBRDs principal instruments in Russia. Their capital comprises $30 million of the EBRDs money and a further $20 million from foreign investment companies. For example, the RABOBANK Group participated in setting up RABO Black Earth Group.

The venture capital funds invest in privatized enterprises primarily by acquiring shares from new issues.

Kalina includes the Ural Gemstones factory in Yekaterinburg; the perfume and cosmetics plant Alie Parusa in Nikolayev, Ukraine; the Almalikski household chemicals factory in Uzbekistan; and a laundry materials plant in Omsk, western Siberia.

About 15 percent of the Kalina shares now belong to regional funds and the remainder to the management company Eagle Venture Partners, the EBRD source said.