GREAT CITY PRESENTATION DECEMBER 2016 FC

TABLE OF CONTENTS

A. General background of the Project: key economic and social factors in Azerbaijan

I. Strong capacity to adapt to a changing oil price environment

II. Strongly increasing urban middle-class population

III. Unsatisfied demand for middle-class housing

IV. Robustly sustainable real estate market prices

B. The Great City Project

I. Presentation of the Great City Project

II. Presentation of the sponsors

III. Business model of the Great City Project

IV. Analysis of risks and stress scenarios

V. Conclusion: options for participation

Despite modest Doing Business Index ratings and more limited inflows of FDI relative to its GDP than inneighbour countries, Azerbaijan has been a star economic performer in the last 10 years. Its growth hasbeen among the highest in the World. GDP of Azerbaijan (USD 75 billion in 2014) is now 4.5 times higherthan in Georgia and 6.5 higher than in Armenia

10,1 10,0

8,2

6,5

5,6

5,0

4,3 4,3

0

2

4

6

8

10

12

Turkmenistan Azerbaijan Uzbekistan Tajikistan Kazakhstan Georgia Kyrgyz Republic Armenia

Average yearly GDP growth 2006-2015 (%, source IMF)

20,9

4,5

-0,5

0,0

-4,4

-8,8 -9,3

-13,0-15

-10

-5

0

5

10

15

20

25

Azerbaijan Uzbekistan Turkmenistan Kazakhstan Tajikistan Kyrgyz Republic Armenia Georgia

Azerbaijan authorities were fully aware of the limits of their oil-and-gas rent and managed the economyaccordingly by accumulating unparalleled external surpluses during the oil boom. For that reason,Azerbaijan was well prepared to the recent halving of oil prices that followed ten years of bonanza

Average yearly current account balance/GDP 2006-2015 (%, source IMF)

5,45,1

4,0

2,7

-2,1

-3,1

-3,8

-4,5

-6

-4

-2

0

2

4

6

Azerbaijan Uzbekistan Turkmenistan Kazakhstan Tajikistan Armenia Kyrgyz Republic Georgia

High budget surpluses have been parked in an Oil Fund whose foreign assets were estimated by IMF at 34billion USD (50% of GDP) in 2012. Together with foreign exchange reserves of the Central Bank of theRepublic of Azerbaijan (CBRA) they make up for 67% of GDP, much more than the gross external debt (17%of GDP)

Average yearly General Government balance/GDP 2006-2015 (%, source IMF)

10096

87

75 74

8185

89

114110

115

122

115

120

141

117

50

60

70

80

90

100

110

120

130

140

150

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 August

Despite the robustness of the external position of Azerbaijan, CBRA has devaluated the AZN in 2015.Thanks to this precautionary approach in line with past cautious macro-economic management, IMFexpects a 3% of GDP current account surplus in 2015 thanks mainly to reduced imports

Real effective exchange rate non-oil sector (December 2000=100, CBRA)

9691

78 7671

0

20

40

60

80

100

120

The impact of the devaluation on exports will remain limited on the short run as 96% of exports werelinked to the oil and gas sectors prior to the fall of oil prices. This reflects the economic distortions againstother productive sectors (agriculture, manufacturing) that were generated by the oil boom, a commonfeature to all natural resource rent driven economies (Dutch disease)

Share of oil and gas in total exports (2013, %, ITC)

100

84

7571

7469

7279

87

95100

106 108

122 122 124131

142 139

147

155161

0

20

40

60

80

100

120

140

160

180

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

But the combination of a more competitive exchange rate and of well targeted State and IFIs supportpolicies will allow Azerbaijan to diversify its economy on the medium run. They will help take full benefitof its comparative advantages in sectors such as agriculture where it has already obtained some goodresults despite Dutch disease

Azerbaijan Gross Agricultural Output (index 100=1992, FAOSTAT)

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24'449 24'108

18'246 17'761

14'217

9'209 8'681

8'164

5'630 4'998

3'622 2'698

-

5'000

10'000

15'000

20'000

25'000

30'000

Russia Kazakhstan Belarus Azerbaijan Turkmenistan Georgia Ukraine Armenia Uzbekistan Moldova Kyrgyz Republic Tajikistan

Thanks to very strong growth economic growth, GDP per capita in Azerbaijan is now amongthe highest among post-Soviet countries, well above levels of other Caucasian States

GDP per capita PPP USD 2014 (IMF)

25,626,0

26,527,4

28,228,6

29,029,6

30,831,231,231,3

32,733,033,433,733,7

34,534,8

36,036,236,536,7

37,640,1

42,142,1

43,6

0 5 10 15 20 25 30 35 40 45 50

Ukraine

Slovakia

Belarus

Romania

Bulgaria

Montenegro

Kazakhstan

Serbia

Tajikistan

Slovenia

Hungary

Armenia

Poland

Moldova (Republic of)

Kyrgyzstan

Croatia

Azerbaijan

Albania

Latvia

Estonia

Bosnia and Herzegovina

Mongolia

Uzbekistan

Lithuania

Russian Federation

China

Georgia

The former Yugoslav Republic of Macedonia

Meanwhile, economic growth has not been associated with very strong increase in income inequality as inneighbour Georgia or Russia. Therefore, the combination of very strong growth and moderate incomeinequality has led to a reduction of poverty unparalleled in the Caucasus and the emerging of a largemiddle-class

Gini coefficient (2003-2012, UNDP)

9593

6616

4841

0

2000

4000

6000

8000

10000

12000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total population (thsd.person)

population at working age (thsd.person)

Economically active population (thsd.person)

Contrary to other Caucasian countries, the population of Azerbaijan is young and growing even thoughbirth rates have declined from 25.9 per 1/1000 at the end of the Former Soviet Union to 18.1 in 2014. Theage pyramid is ideal with a very high population at working age/total population ratio which often goeson par with high rates of economic growth

Active population (source AzStat)

2000

3000

4000

5000

6000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

urban places

rural places

Even though 37% of the workforce is still employed in agriculture, 53% of the total population was urban in 2015, against 51% in 2000

Population change by type of locality (thsd. persons,source AzStat )

1500

1600

1700

1800

1900

2000

2100

2200

2300

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

After initial contraction following the end of FSU, the population of Baku has steadily increased, attractedby jobs opportunities in sectors such as services with white collars middle-class progressively taking overblue collars farmers or industrial workers

Dynamics of population growth in Baku(at the beginning of the year, thsd. persons, AzStat)

445

1754

1199

735

670

627

567

530

495

489

480

464

400

374

332

308

298

250

241

198

0 200 400 600 800 1000 1200 1400 1600 1800 2000

Total economy

Mining

Finance

Information and communication

Professional, scientific and technical activities

Construction

Administration

Transportation and storage

Manufacturing

Production, share and supply of electricity, gas and steam

State management and defence, social security

Accommodation of tourists and public catering

Other service activities

Trade

Water supply, cleaning and processing of wastes

Real estate activities

Education

Art, entertainment and recreation

Agriculture, forestry and fishing

Human health and social work activities

In sectors such as finance, wages are much higher than on average and there is still much potential forgrowth in employment as the credit to GDP ratio in Azerbaijan (WB, 2013) is only 25.5% against 39.8% inGeorgia and 45.2% in Armenia

Average monthly nominal wages and salaries, 2014 (AZN, AzStat)

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100 103112

131

179164

201

241

284

345

376

100

119

150

180

200211

224 231240

256265

0

50

100

150

200

250

300

350

400

450

500

2004 2005 2006 2007 2008 2009 2010* 2011* 2012* 2013* 2014*

Construction

Mining

Trade

Total GDP

Manufacturing

Agriculture

The construction sector has been the most dynamic economic sector in the last 10 years,together with oil and gas

GDP and sector growth 2004-2014 (index 2004=100, AzStat)

0

500

1'000

1'500

2'000

2'500

3'000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

rural

urban

This strong growth first reflects pent-up demand following a decade of massive under-investment in the1990s and not a real estate bubble linked to the oil boom: while there has been very few investments inreal estate financed by abroad, the total credit portfolio of banks in construction and real estate was,according to CBRA, only 2.7 bn USD in mid-2015

Dwellings houses submitted into use by type of locality (source AzStat)

0,70,8

1,0

1,7

1,5

1,9

1,61,7

2,0

1,5

2,0

1,8

2,22,3

1,9

0

0,5

1

1,5

2

2,5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

As of today, levels of construction per capita still remain much lower than in Soviet times and are insufficient to deal with the needs of the strongly developing urban middle class

Number of dwellings submitted into use per 1000 population (source AzStat )

860 840

10451100

1181

1630

0

200

400

600

800

1000

1200

1400

1600

1800

2010 2011 2012 2013 2014 2015

In 2015, the Baku housing market was faced with the combined impact of the devaluation and of lowerGDP growth. It led to much lower USD prices for the secondary market (by more than 30%). But prices inthe primary real estate market remain almost unaffected, partly because prime quality real estate is agood storage of value in times of uncertainty

Dynamic of prices on primary real estate market in Baku (mbagroup.az)

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V. Conclusion: request for credit

In the future, Government schemes favoring access of the population to property of real estate will keep on sustaining market development

Azerbaijan has already approved the law on mortgage lending

Currently interest rates in AZN are:• 4% - for public servants (through the Azerbaijan State Mortgage Fund)

• 6% - for other categories of population (through the Azerbaijan State Mortgage Fund)

• 8% - for other categories of population (through commercial banks)

From January 2017:• Additional AZN 200 million will be allocated to the existing quota of AZN 600 million for the Azerbaijan State

Mortgage Fund

• The individual ceiling for subsidized mortgage credits will be increased up to 200 000 AZN

• Interest rates will be reduced to :

- 2% - for access to property of young borrowers

- 3% - for public servants

Market conditions for buyers

City center

Near the center

Far off from the center

Outskirts of the city

1800 - 5000 USD

1200 - 2000 USD

800 - 1600 USD

550 - 1000 USD

Great City Construction Project

1100 USD *

Price per 1 m2:

* - Base scenario

Prices in Baku depend on locations in four different circles. The Great City Construction Projectis located in the 2-nd best circle whose prices are in a 1,200/2,000 USD bracket.Proposed sales prices are 1,100 USD/m2, therefore very attractive

Price specificities in primary real estate market in Baku

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Summary of the Project

• The Great City Project is one of the biggest construction projects in the Republic of Azerbaijan on a territory of 10ha close to the center of Baku

• It is implemented in close coordination with Nikoil Bank that participates in State supported programs for housing and that will provide buyers with cheap mortgage finance

• Its main goal is to supply affordable and comfortable housing for the Baku middle-class

• Construction is capped at 4 floors, which is a very popular type of residence among the middle-class even though currently most new buildings are much higher

• The project includes 60 residential buildings and all infrastructure facilities

Location of the project site: at the heart of the new Baku

• Azerbaijan, Baku 40°24’21.19”C 49°53’53.00”B• Only 2 km from the city center• Only 100 m from Heydar Aliyev Avenue, the backbone of

modern urban development of Baku on the way to theairport and… beaches!

Location of the project site: at the center of high paid jobs location

• On photo 1 a new hospital within walking distance from our residence: jobs and services

• On photos 2 and 3, top market office towers, located just opposite from Great City residence. Headquarters of national oil company SOCAR, AZERSU (State Water Supply Company), Central Bank of Azerbaijan, State Oil Fund…

• No traffic jam to go to your well-paid job in flagship institutions!

Our neighbors:

1 32

Residential buildings:

• Underground parking with total area 24’000 m2

• For each apartment - one parking place• The exterior will be decorated with luxury finishing materials, including

natural granite and wood, as well as individual decorative elements

Architectural approach: efficient beauty

• 960 flats with total area 96’000 m2

• 1-2-3-4 bedroom apartments

• Size of apartments from 91 m2 to 260 m2

• Ceiling height of 3.3 m

• Large halls

• Each apartment will have a guest toilet

• Each bedroom will have a separate bathroom

Providing the highest building standards at affordable prices

school

health center

artificial lake

kindergarten

residential buildings

infrastructurefacilities

supermarket

restaurant

Organization of the residential complex: make life comfortable

Kindergarten

Restaurant

Infrastructure facilities:

Supermarket with total area 6’000 m2

The Project includes all needed infrastructure facilities: school, kindergarten, health center, fitness club, supermarket, restaurant, etc.

The best choice for families

• The Great City Residential Complex is a Green concept with gardens, playgroundsand even an artificial lake

• A private water cleaning system will be installed, providing high quality potabledrinking water, an exception in Baku

• All the territory of the complex will be securely fenced, with a security checkpointat the entrance of the courtyard and of the parking. Green life will be a privilege

A Great Green City

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Great City LLC: a special purpose company created for the Project

• Great City LLC is a special purpose companyestablished in Azerbaijan for the implementationof the Project

• It is in charge of the whole development andmanagement of the Project until final sale tocustomers

• All the construction works are carried out bycontracted reliable suppliers and contractors

Organizational structure of Great City LLC

• Great City LLC is belonging 100% to O2 HOLDING SA, a Swiss group based in Geneva.

• KAT Holding has been chosen as contracted developer of the

• KAT Holding has extensive experience in the construction of residential and office buildings of varying complexity

• Currently KAT Holding is involved in: construction, manufacture of windows, doors, and glass frames in a J/V with German company IND

• It has extensive experience in working with key local and international partners

• The registered address and headquarters of KAT Holding are Azerbaijan, Baku, İ. Orudjov str. 1 (Nobel Avenue 1), AZ1025

KAT Holding: the experienced developer of the Project

№ Project description:

Co

mp

lete

d

1 9-storeyed office building at address: N.Rafiev-13, Baku, Azerbaijan

2 Hillside Hotel-Restaurant in Zagulba Settlement

3 Residential village at Khatai district, 11 S. Vezirov Street, Baku

4 Office Building at 1- I.Orudjov Street, Baku, Azerbaijan

5 Residential complex in Dnepropetrovsk City, Ukraine

6 Residential village in Gandja City, Azerbaijan

7 Varli recreation zone

8 Multifunctional complex Luxen Plaza

Cu

rre

nt

1 Zabrat Great City residential complex

2 Great City residential complex

3 Business Centre at 20th Site, Baku

4 20-storeyed Business Center at 14th Site

Pla

nn

ed 1 Complex of cottages

2 Complex of offices Izumrud

3 Residential complex Vechnost

Projects developed by KAT Holding

http://katholding.az/images/banners/014-2.jpg



















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Great City residential construction will take place in 6 phases. Each phase of construction iscompletely independent from others. Residential buildings have only 4 floors therefore timeneeded for construction of each phase is only 6 - 7 months. Time needed for construction ofinfrastructure facilities is 14 months

Great City: a sequential business model

2016 2017 2018

12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Construction of 1st 9 buildings

Construction of 2nd 12 buildings

Construction of 3d 10 buildings

Construction of 4th 5 buildings



Construction infrastructure buildings

The operational cash expenses of the project,including financial cost are 81,67 mln USD in thebase scenario and 82,5 mln USD in the LOWscenario

They are based on contracts in USD alreadysigned with reliable contractors that haveworked for many years with Kat Holding

The slight difference between operational cashexpenses of the two scenarios reflects higherinterest costs in the negative scenario

Operational cash expenses of the project, USD

Operational cash expenses BASE LOW

Preparation of project architect.estimate docs and constr 2 453 720 2 453 720

Construction permissions 913 000 913 000

Preliminary work, cleaning of surface 700 000 700 000

Preparation of Gasification, Electric supply, Water suppl 5 830 000 5 830 000

Purchase of plot of land 18 400 000 18 400 000

Construction of 1st tranche 9 buildings 450 Man/m2 5 315 625 5 315 625

Construction of 2nd tranche 12 buildings 7 087 500 7 087 500

Construction of 3d tranche 10 buildings 5 906 250 5 906 250

Construction of 4th tranche 5 buildings 2 953 125 2 953 125



Construction School, Store, KG, Restaurant 1100Man/m2 8 250 000 8 250 000

Advertising 70 000 70 000

Infrastructure and decoration 1 900 000 1 900 000

Gross wages developer (exact withdrawal) 1 280 000 1 280 000

TAX (45 man per m2) 3 494 119 3 494 119

VAT (canceled) - -

Insurance 275 000 275 000

Interests paid on loan 2 670 734 3 504 643

Total Operational Cash Expenses Accumulated 81 674 073 82 507 982

Cash Receipts Total per LineCash Sales of 1st 9 buildings * 15 840 400

Cash Sales of 2nd 12 buildings * 21 120 000

Cash Sales of 3d 10 buildings * 17 600 000

Cash Sales of 4th 5 buildings * 8 800 000



Cash Sales Parking 8 640 000

Cash Sales School, Store, KG, Restaurant 12 000 m2 19 200 000

Total Cash Receipts 133 440 400

Cash Receipts Total per LineCash Sales of 1st 9 buildings * 11 520 000

Cash Sales of 2nd 12 buildings * 15 360 000

Cash Sales of 3d 10 buildings * 12 800 000




Cash Sales Parking 6 720 000

Cash Sales School, Store, KG, Restaurant 12 000 m2 14 400 000

Total Cash Receipts 97 920 000

BASE SCENARİO: (STRESSED) LOW SCENARİO:

Calculated sale price per m2 for apartments

Calculated sale price per parking place

Calculated sale price per m2 for infrastructure buildings

1 100 USD

9 000 USD

1 600 USD

800 USD

7 000 USD

1 200 USD

NET CASH FLOW BEFORE RESERVE51,766 327 USD 15,412,018 USD

Total estimated operational cash income from sales fluctuates between 133.44 and 97.92 mln. USD in our two scenarios

Operational cash income from sales

*5% reserve to be deducted from sales amount

Completion of buildings and sales are done step-by-step allowing optimal cash flowmanagement and efficient marketing as volume of supply will remain capped during the Project

Sales plans

2017 2018 2019

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6

Cash Sales of 1st 9 buildings

Cash Sales of 2nd 12 buildings

Cash Sales of 3d 10 buildings

Cash Sales of 4th 5 buildings



Cash Sales Parking

Cash Sales Infrastructure buildings

Financing requirements:During first period of construction, a negative accumulated operational cash flow is generated but largelymitigated by USD 18m advanced disbursement. In the base scenario the extra financing call would bemax USD 16m for a period of 18 - 24 months.

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Operational cash and credit needs base scenario (USD)

Credit needs (outstanding amounts)

Total Net Operational Cash Accumulated

Equity investment and shareholder advancedisbursement net accumulated

In the low scenario, the negative accumulated operational cash flow not covered by equity andto be financed by debt is slightly higher at USD 17.9 million

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Operational cash and credit needs base scenario (USD)Credit needs (outstanding amounts)

Total Net Operational Cash Accumulated

Equity investment and shareholder advancedisbursement net accumulated

Net cash flow in the base scenario is 51.77 mUSD, and in the (stressed) low scenario 15.41 mUSD. IRR in the base scenario is 49.6%, and in the low scenario 17.3%

Base scenario Low scenario

Calculated sale price per m2 for apartments 1 100 800

Calculated sale price per m2 for apartments (index base scenario=100) 100 70

Calculated sale price per parking place 9 000 7 000

Calculated sale price per m2 for infractructure buildings 1 600 1 200

Total m2 of apartments 96'000 (60X1600) 96 000 96 000

Total parking places 960 (60X16) 960 960

Total m2 of infrastructure buildings 12'000 12 000 12 000

Sales apartments 105 600 400 76 800 000

Sales parkings 8 640 000 6 720 000

Sales infrastructures 19 200 000 14 400 000

Total sales 133 440 400 97 920 000

Net cash flow 51 766 327 15 412 018

IRR 49.6% 17.3%

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The business model is resilient to the risk of price fluctuations. Current market prices are 23%higher than in the base scenario. Break-even prices are equivalent to the lowest market prices inthe period 2010-2015. Break-even prices required to repay debt are much lower

1 100

800

670625

1 400

1 109

860

-

200

400

600

800

1 000

1 200

1 400

1 600

Base scenario Negative scenario Break-even price (netoperational cash = 0)

Break-even pricerepayment of credit

Current market prices Average market prices(2010-2016)

Lowest market prices(2010-2016)

Calculated sale price USD per m2 for apartments

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Based on this analysis, these are the financing requirements:

• Max 18m USD

• Tenor: max 24 months

• Currency: USD

• Type of facility: matching cash flows profile in financial model, with progressive disbursements andrepayments (ideally a credit line with disbursements/repayments of at least 1m USD)

Options for participation to the project:

I. Participation to Project finance (credit) together with NIKOIL Bank (local bank) acting as an agent (pledge of the account of Great City LLC together with all other required collateral), OR

II. Direct Project finance with an equity or equity kicker component, or

III. Purchase and prepayment of a lot of apartments (up to first 20 buildings) at discount on market prices

Conclusion: options for participation

GREAT CITY PRESENTATION DECEMBER 2016 FC

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