Text Introduction

Hello, I am John Bonar, The Chief Investment Adviser and Russia Country Manager for Relex.

Today, I am going to update you on what we have been doing in Russia, particularly the Pacific city of Vladivostok for the last three months.

Everything here takes longer than you planned, but we have had some success and are making progress.

My main task has been building a local team and in that I have been very fortunate. I will introduce them later in this meeting.

What we have done would not have been possible without the support of the regional administration, particularly Elena Demidenko, adviser to the Vice Governor of Primorsky Krai for Entrepreneurship. Primorsky Krai, is the Far East Russian province of which Vladivostok is the capital.

Also, at a practical level, we have made abundant use of the services of Opora Russia, the country’s leading national organisation for small and medium sized business. Particularly Vitaly Gumenyuk, their local branch Chairman and Andrey Obrashko, the head of their local legal services office.

We have been introduced to investment opportunities and local entrepreneurs by Dmitrii Yamschikov, the Director of the Primorye Investment Agency.

Lastly, I am pleased that we have found support from Andrei Brik, the Chairman of the Vladivostok City Duma, or local parliament who has a particular interest in expanding tourism facilities and services in Vladivostok.

I have met many local entreprenurs, businessmen, owners of land who have a desire to have it developed. Their plans however have largely been inadequate to interest international investors.

One or two stand out and we have been pursuing projects with them.

Why, you might ask, are we so interested in pursuing opportunities in Russia, given the intense scrutiny of that country’s policies, the ever widening and encompassing level of sanctions against Russia and the vilification of its leader, Vladimir Putin ?

Well, this summer over a million soccer fans came to Russia for the World Cup competition, the largest number at 12.8% coming from the USA and judging by the reports and interviews that appeared most were astounded that the Russia they saw, the Russians they met were completely at odds with what their national press had led them to believe.

Try as they might, western media have been unable to find a genuine popular opposition to Putin.

The reason is simple.

When Putin came to power in Russia in 1999 the country was on its uppers.

GDP was 195 billion dollars.

Inflation was running at 36.5%.

Pensioners received only 499 rubles a months — or less than $20 a month!

By 2017, after 19 years of Putin at the helm, GDP was $1.579 trillion; inflation is cut to 2.5% and pensioners receive over $200 a month and that is at the recently reduced exchange rate sparked by the latest round of sanctions.

Currently the Russian government is mulling an increase in the state pension age and that is why many observers have attributed a dip in Putin’s approval ratings. Currently they are around 72%.

The leader of the anti-Putin crusade is Britain’s Theresa May and she has an approval rating quoted by the Washington Examiner of 28%. President Trump scores 40%.

So… Sanctions, sanctions, sanctions. A falling ruble and tumbling Russian stock markets.

What I see is opportunity, opportunity, opportunity.

When stocks fall and the ruble is cheap the attraction of real estate for investment, profit and future income is great.

That’s why I am confident that Russia is where we can secure great returns for Relex investors.

What you need is local knowledge and a presence coupled with tenacity and the will to succeed.

We have all these in abundance.

Now, to the practicalities.

To counter the absence of entrepreneurs’ experience in preparing propositions for international investment my first step has been to register a company Vostok Projects. This is a developer and partner of local businessmen to bring their projects to fruition. The General Director, or CEO of this limited liability company, a Russian OOO is Natalia Anoshkina, an experienced administrator coming from a background in education whose last position was international director of the Primorye Investment Agency.

The Chief Operating Officer of Vostok Projects is Marina Ginevskaya who comes with a distinguished background . In the run up to the 2012 APEC Summit which was pivotal in putting Vladivostok back in the national and regional consciousness she was the general director of the construction company which built the two cable span bridges which crossed the Golden Horn Bay which the city is built around and connects the Rossky Island to the mainland. The Island was the site of the summit and the infrastructure that was built for it was handed over as the new campus for the 120-year old Federal University of the Far East.

The bridges are now as iconic for Vladivostok as the Golden Gate Bridge is for San Francisco.

It is Vostok Projects intention to apply for residence in the Free Port of Vladivostok. This development area is huge, encompassing several ports in the Far East and also several municipal areas.

Companies accepted for residence in the Free Zone are extended a number of tax privileges including:

7.6% of the total amount of social insurance fees for 10 years, upon the receipt of the resident status; Usually it is over 22% in Russia including penision.

5% profit tax (0% to the federal budget and not more than 5% to the regional one); Elsewhere in Russia it can be 20%

0% of the land tax for 5 years;

0% of the property tax for 5 years and 0.5% for the next 5 years;

10 days accelerated procedure for Sales Tax — that’s VAT — refund.

Relex investors in projects proposed by Vostok Projects will realise the benefits from these incentives.

The first project we are negotiating is an agreement on a 61-residence elite village development 25 kms from the city centre of Vladivostok and 10 kms from the airport. It is located adjacent to a leisure and sports complex and we are negotiating a 60 percent partnership with the site owners. The US$ 4.5 million that we are seeking and includes all first year operating expenses of Vostok Projects, would yield a pre-tax IRR of 31%. Payback starts in Q4.

We still have to ink the deal and prepare a business plan to meet the criteria of the Far East Development Corporation to secure Vostok Projects residence in the Free Port of Vladivostok.

That’s the first project.

Other projects that we are progressing in Vladivostok regions include:

50% share in a wood processing facility which would construct kits of panels and trusses for Canadian style wooden frame houses. An investment of 2million Euros is being talked about.

An adjacent 350 acre site, owned by the same entrepreneur, would be available for development. This needs further discussion but would be a source of initial business for the factory which will have a capacity of 600 houses a year.

Our headline project is for a massive golf and leisure park including a hotel and conference centre, and a health spa. This is where we have spent the most time viewing sites and which has provided us with the greatest learning experience.

Some of the sites are huge. One that we looked at with Marina was 2,500 acres!

Most golf courses parks do not need more than 500 acres.

We are still following through on that site, seeking topographical data which would help my Golf course designers and architects assess the potential for a golf course.

The designer we would work with is Sandy Lyle, the Scottish PGA champion golfer who made his name alongside Nick Faldo and Ian Woosnam in the 1980’s and the golf course architects are Edinburgh-based Scott Macpherson Associates.

The market for the golf course would be the golf-crazy Koreans who live next door to Russia and are within a 2-hour flight of Vladivostok. The Japanese and to some extent the Chinese, who are just beginning to play golf in a big way, would also be a target market but the main focus would be on the Koreans.

Before anyone asks me about freezing temperatures, we have had a roasting summer with temperatures topping 37 degrees Celcius on some days.

On the topic of Vladivostok projects, Marina has just come up with 3.7 acre waterfront site in the centre of Vladivostok, suitable for a hotel plus townhouse development and tennis courts. The initial funding is US$ 2.5 million.

I will have more details on these projects by next weekend and will unveil them at the Relaxation weekend in Vietnam.

When I get back to Vladivostok from that I will be heading to our solicitors to sign the foundation documents for Yes-to-Business Vostok, which will be our operating company for all activities outside the Free Port of Vladivostok area.