Etalon Group Limited announces proposals for a GDR purchase program of up to 9.25 per cent. of its issued share capital

27 October 2011

 

Etalon Group Limited (LSE: ETLN) (the “Company”), one of Russia’s largest and oldest residential real estate developers, announces that on 28th October 2011 the Company’s Board of Directors approved a proposed purchase of Global Depositary Receipts (“GDRs”) representing Ordinary Shares of the Company of up to 9.25 per cent. of the Company’s issued share capital (the “Proposed Program”). The Board of Directors believes the Proposed Program represents good use of the Company’s available cash resources as a better alternative to bank deposits.

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The Proposed Program is subject to the passing of an ordinary resolution of the Company’s independent shareholders in favour of a waiver under Rule 9 of the City Code on Takeovers and Mergers (the “Code”) in respect of the potential increase from 47.2 per cent. to 52 per cent. in the aggregate voting rights attributable to Ordinary Shares of the Company beneficially owned by Viacheslav Zarenkov, Galina Zarenkova and Dmitri Zarenkov (who comprise a Concert Party for the purposes of the Code) that could result from the Proposed Program. All of the Company's directors, excluding Viacheslav Zarenkov and Dmitri Zarenkov as members of the Concert Party, have approved the publication of a circular to shareholders giving notice of an extraordinary general meeting of the Company to be held on 14th November 2011, and recommending that independent shareholders vote in favour of the resolution authorising the waiver.

On 27th October 2011, the Panel on Takeovers and Mergers consented to the waiver conditional upon the passing of the resolution by the independent shareholders.

The aggregate amount of the Proposed Program, if implemented, will not exceed 9.25 per cent. of the Company’s issued share capital. The Proposed Program will commence on 15th November 2011 and continue until 14th November 2012, unless terminated earlier by the Company. Purchases under the Proposed Program will be made either by on-market transactions or through off-market block trades. Off-market block trades are expected to be significantly larger than on-market transactions and may well be larger than average daily trading volumes on the London Stock Exchange.

Purchases pursuant to the Proposed Program will be conducted by Etalon Development Limited, a wholly-owned subsidiary of the Company. Renaissance Capital Limited, which is authorised and regulated by the UK Financial Services Authority (the “FSA”), is acting as nominated independent financial adviser, as contemplated by the Code, and non-discretionary broker in connection with the Proposed Program.

Purchases under the Proposed Program will have regard for FSA rules and regulations. In addition, implementation of the Proposed Program will depend on market conditions and will only proceed if it is believed by the Board of Directors to be in the best economic interest of the Company to do so. The Company expects Etalon Development Limited to sell purchased GDRs back into the market following the expiry or termination of the Proposed Program.

This announcement contains summary information only, and shareholders are advised to read the shareholder circular in full.

Commenting on the Program, Anton Evdokimov, Chief Financial Officer of Etalon Group said: “Etalon’s pre-sales focused business model and determination to efficiently structure new acquisitions have enabled us to accumulate significant cash funds on our balance sheet. Etalon Group has never been stronger than it is today, with around US$ 650 million of cash compared to approximately US$ 350 million of debt, with redemptions spread evenly between now and 2015. This has been possible due to fundamental changes in the land market, where following the 2008 crisis a large number of landowners are competing to monetize their holdings, combined with Etalon’s historically conservative financial strategy.

We view this buyback as a healthy alternative to holding our cash in deposits, and believe that we will be able to increase our working capital by selling treasury shares back to the market in approximately 12 months, or as appropriate when the markets become, in our view more rational. Such a step will help enable us to acquire even more projects and to expand our operations.

When considering the buyback at the Board level we considered the fact that since its IPO Etalon demonstrated significant progress and fundamentally became a stronger and larger business:

First, we have acquired three projects with a total of 518 thousand square meters of NSA, primarily financed by operating cash flows. This represents approximately 40 per cent. of the NSA we envisaged using IPO proceeds to acquire, and we have already made significant progress on these projects.

Second, we were invited to build ExpoForum, an extremely important project for the city of St Petersburg. This is another testament to our track record for delivering quality to our customers and partners, as well as the reputation and credibility that comes from 25 successful years in the business.

Third, we saw a strong year-on-year increase in new sales in the first half of 2011 and, most importantly, robust sales in August and September.

Fourth, we are proud that we were able to over-deliver with our 1H 2011 results.

Finally, and most importantly, we see an ever stronger trend in consumer preference towards low-risk, reputable developers.

Etalon Group saw strong results for 1H 2011, and we see even larger opportunities, and more work to be done, towards the end of the year and into 2012.”

About Etalon Group

Founded in 1987, Etalon Group is one of Russia’s largest residential real estate developers. The Company operates in both the St. Petersburg and Moscow Metropolitan Areas.

Etalon Group has a strong portfolio focused on large-scale residential complexes, with a dominant position in the “comfort class” (lower middle class and upper economy class) price segment, providing high quality living at affordable prices. The Company’s portfolio comprised 28 projects, as of 31 December 2010, with a total of 3.13 million sqm of unsold net sellable area (“NSA”) in the St. Petersburg and Moscow Metropolitan Areas. For the year ended December 31 2010, the Company recorded revenues of RUB 20.3 billion (USD 669 million) and EBITDA of RUB 6.9 billion (USD 227 million), with an EBITDA margin of 34%.

Since 20 April 2011, Etalon Group Limited has had its GDRs traded on the Main Market of the London Stock Exchange.

Etalon Group Limited

Ogier House, St. Julian’s Avenue, St. Peter Port, GY1 1WA, Guernsey

This announcement is not intended to, and does not constitute, or form part of, an offer to sell or an invitation to purchase, exchange or subscribe for any securities in any jurisdiction. This announcement does not constitute a prospectus or a prospectus equivalent document.

Renaissance Capital Limited will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for advising any other person on the arrangements in relation to the Proposed Program, or any other matter referred to in this announcement.

This announcement has been issued by, and is the sole responsibility of, the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Renaissance Capital Limited or by any of its affiliates or agents as to or in relation to, the accuracy or completeness of this announcement.

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28 October 2011