02/11/12
Asset Range

There were no significant mergers in the Ukrainian mining and metal making complex in 2012. A number of large mergers already took place during the previous years. Nevertheless, in the autumn the Russian group Mechel decided to sell Donetsk Electrometallurgical Plant, which it purchased only a year before. The group’s top-management explains it by the unprofitability of the plant due to unfavourable market conjuncture and wants to receive at least $ 400 million for it, which is 25% lower than the plant was bought for.

The famous refractory holding Magnezit, on the contrary, is satisfied with its new acquisition – Panteleimonivka Refractory Plant. The acquisition was completed at the start of 2012 and cost to the Russians up to $ 20 million. Panteleimonivka Refractory Plant is the second largest domestic producer of magnesia refractory products, after PJSC “Zaporizhzhia Refractory Plant”. By 2016, Magnezit intends to produce 25 thousand tonnes of magnesia refractory products at its Ukrainian asset, from the current 1500 tonnes. “Recently, we have completed the first part of this investment project”, says Serhii Odehov, Magnezit’s CEO. “Panteleimonivka Refractory Plant has a good potential to deliver its products to end customers; this is an excellent base to create a modern refractory cluster in Ukraine”.

We should not forget about the rapid formation of a refractory pool in Ukraine under the auspices of General Investment Resources, a venture capital fund affiliated with Guram Nemsadze, the businessman from Donetsk. The pool already includes four assets – Kondratievka and Krasnohorivka Refractory Plants, Krasnoarmiisk Dinas Plant and Velykoanadol Refractory Plant, and economists expect the inclusion of the fifth asset soon, Chasiv Yar Refractory Plant.

The oil and gas sector plays a weighty role both in the domestic and the foreign M&A market. We should remember the rapid accumulation of regional gas supplying companies by Dmytro Firtash’s Group DF, though they were not literal M&A, but a privatisation. Dmytro Marunych, an energy market specialist, believes that Firtash is buying regional gas supplying companies with a view to a significant rise in gas tariffs for the population, because only after this rise, these massive acquisitions can pay off. The acquisitions of our promising carbon assets by foreign players represent the same style. For example, in the autumn the British Cardogan Petroleum completed the sale of 50.01% of LLC “ZakhidGazInvest” (Ivano-Frankivsk region) to Eni, the famous Italian energy company. ZakhidGazInvest has licences to develop nine deposit fields of shale gas in Lviv region with the total area of 3800 square km, which is an extension of the Lublin field in Poland. It should be reminded that in 2011 Emi bought from Cardogan 30% in Pokrovskoe Petroleum B.V. and 60% in Zagoryanska Petroleum B.V. (both from the Netherlands), which have licences to develop Pokrovskoe and Zagoryanskoe oil and gas fields.

Finally, in the autumn Smart Energy (the energy division of Smart Holding) announced its plans to complete the acquisition of gas fields in Ukraine with the total capacity of 50 billion m3. As is known, Smart already owns several domestic carbon assets via Regal Petroleum (Britain). The situation with a future owner of Lisichansk Oil Plant, which is being sold by TNK-BP, is also unclear (experts presume that it could be the same Dmytro Firtash). Besides, speaking about the energy sector, Dmytro Marunych reminds of the strengthening of DTEK’s share in the statutory funds of such power generating companies as DniproEnergo, ZakhidEnergo and KrymEnergo.

Buyers remain interested in small Ukrainian coal mines. During the recent years, the most well-known coal projects with foreign capitals in our country were Sadovaya and Coal Energy. This autumn it was reported that Cok-Par Resources Corp. (Canada) also intends to buy a coal deposit field in Donbas. Ukraine made foreign coal acquisitions in 2012, too. DTEK bought three mines in the Rostov region of Russia and a coal preparation plant for approx. $ 40-50 million.

There were the acquisitions of foreign machine building assets. At the beginning of the year, Motor Sich completed the acquisition of 57% of Orsha Aircraft Repair Plant in Belarus to modernise Mi-8 helicopters to Mi-8 MSB. The cost of the package was only $ 1.1 million. And of course, M&A continue in the financial market: the recent large merger was the purchase of the German Commerzbank’s Forum Bank by Smart for less than UAH 700 million. “The purchase of Forum Bank corresponds to the general development strategy of the holding and its banking business. The acquisition will allow us to occupy the leading positions in the banking sector”, says Aleksey Petrin, Smart Holding’s CEO. Besides, the group is completing the purchase of BM Bank from the Russian VTB Bank. So, the largest Russian banks have not merely entered the domestic market, but are already making M&A.

The Germans, however, left the country with huge losses, as according to financial analysts, they bought a bank for almost $ 1 billion in 2008-2010. Earlier, another foreign bank, SEB (Sweden), also left the Ukrainian market by selling SEB Bank (formerly, Azhio) to Oleksandr Odarych, the ex-head of UkrSibBank. In this connection, V. Strukov reminds that European banks are gradually funnelling their capital out of Ukraine, not only because “the situation in Ukraine is bad”, but also because of the need in resources in their basic markets of the European Union.

 

Tomorrow’s Outlook

 

So, despite of the fact that the crisis is going on, in 2012 the domestic M&A sector was rather active. Vitalii Kulyk, an economist and a political analyst, attributes it mainly to the fact that in spite of the unfavourable general situation in the Ukrainian economy, the country’s largest industrial holdings maintained rather good capital reserves. The reserves are used, among other things, on new acquisitions. And if during the previous year, there were two sectors dominating: agriculture and power generation, then in 2012, the share of the latter strengthened substantially. At the same time, there were no large acquisitions in the mining and metal making complex.

“Nevertheless, by the end of the year, the M&A market will not reach the last year volume of $ 5 billion; at most, it will just exceed $ 4 billion. But in 2013, the total amount of acquisitions can be $ 5 billion again or even more”, the specialist says. “And the question is not only in the possible stabilisation of the world economy, which is able to increase investors’ expectations. On the contrary, it is the inaccessibility of the IPO market and the expensiveness of credits that push the Ukrainian operators to mergers and acquisitions, which enable to consolidate their potential”. The companies that have access to the Western capital markets, like Group DF, Kernel and metal holdings, are the major potential consolidators.

These companies will influence the national M&A structure during the coming year, too. For example, Myroslav Tabakharniuk, chairman of MT Invest’s supervisory board, confirms the investors’ interest (both from Ukraine and Russia) in acquisitions in the country’s agriculture and food industry. As a result, during the coming year, the agriculture can retain the positions of one of the two M&A leaders in Ukraine. Besides, the Georgian IDS Borjomi Beverages, which owns Myrhorod and Morshynskyi Mineral Water Plants, is being prepared to be sold for $ 400-500 million. Among the candidates, there are Nestle, Danone, PepsiCo and other strategic investors.

This summer, Dmytro Firtash said that he planned to continue buying assets, including large fertiliser plants in Europe. He said that he did it to increase to manufacture high value-added products and to oust importers from the domestic market. Privatisation can help Group DF’s expansion again. The government took a decision to privatise 50%+1 shares of Crimea Titan PJSC, half of which already belongs to Firtash. The attractive transportation assets are offered for sale, too: 41.73% of shares of PJSC “UkrTransLeasing” (almost half of which already belongs to Lemtrans LLC), 99.52% of shares of LLC “KyivTekhService” (transportation services in Kyiv), 25.1% of shares of LLC “Merchant Fleet of Donbas”, 25.1% of PrJSC “International Transport Company “UkrZovnishTrans” and the rest of the state share in AeroSvit (22.394%).

Traditionally, a number of 100% or so packages of machine building plants are offered for sale: from tool engineering to ship building and agricultural machinery. The same refers to a number of regional agricultural machinery plants dealing with manufacture and repair of agricultural machines in the regions. Among such plants, there are Turboatom, Chernomosky Shipbuilding Yard, Odesa Radial Drilling Machine Plant, Mayak Plant in Kyiv, Krasnyi Luch machine Building Plant, etc. And of course, this is 60.773% of state shares PJSC “DonbasEnergo” and 53.289% in PJSC “TsentrEnergo”.

Vitalii Kulyk resumes: “Generally, in 2013 the Ukrainian M&A will be active in all traditional areas and in a number of industry sectors. The structuring of the property, including the privatisation, is going on in Ukraine, which is bringing the country to the world business standards and will in the end make its economy more efficient”.

 


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