Capital Research

"As a result of the Russian economic crisis our investors were exercising their right to renegotiate the deal. I flew to London and spent about a week negotiating day and night from a small room at the Metropolitan Hotel, where I and my lawyer lived on room service. Capital Research no longer wanted to equity-fund the project, so we decided to change all the equity in the financing to debt. And, with valuations so uncertain, we agreed to disagree on the value of the company at that time. Capital Research would provide the capital as debt – but it was expensive debt. There was a 30 per cent interest rate and the right to convert into ordinary shares at a 20 per cent discount; effectively it meant that we were borrowing money at 40 per cent per year. Furthermore, if the company was not sold in four years’ time, Capital had the right to appoint an investment bank to sell the business. I had taken on a lot and now found myself in a race. Within three or four years, we had to build up and sell the business. There was a very real chance that I would end up with nothing. After all, it was a loan at 40 per cent interest!"

"The Russian beer market was really taking off. For every can of ‘long’ drinks sold in Russia, 40 times as much beer was being consumed, and the market was growing at 20 per cent a year. If we could win just a 5 per cent share, that business would be much larger than anything we were doing in alcopops. Beer was a complementary product, distributed by the same dealers and sold in the same bars. We had the connections. We just needed the capital and the sheer nerve to do it. We focused on long drinks from 1996 to 1998 and started our brewery project the following year. Free cash flow from the long drinks business went into securing the land and some of the equipment, but we needed another $25 million. Russia was booming, so we decided to tap external investment for the first time, going to the London capital markets. We thought we would have to syndicate the $25 million, but a Californian funds group, Capital Research, attracted by the idea of private equity in an emerging market, said that it wanted to fund the entire project. We spent some time negotiating the valuation, estimating future earnings and coming up with a formula that gave Capital 33 per cent of the company. The shareholders all agreed, and we set up a tax-efficient Cyprus-based company to own all the Russian assets."