Sovkomflot's First Deputy Director General Sergei Terekhin gives an interview.
Photo: Pavel Smertin
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Sovkomflot and Novoship to Create Company Worth $5 billion
Russian President Vladimir Putin signed on Wednesday a decree on merging the state package of Novorossiysk Shipping Company (Novoship) into Sovkomflot’s registered capital. Thus, the deal to merge two major Russia’s state-run sea oil carriers entered its final stage. Consequently, a company worth $5 billion, fifth-ranked in the world for its tonnage, will be created. Sovkomflot’s management admits of a possibility that the enlarged player of the market will later begin acquisition of foreign competitors. Investment analysts name the difficulty of managing the new company as one of its risks.
Russian President Vladimir Putin held a working meeting with Sovkomflot’s Director General Sergei Frank on Wednesday. The CEO said it was devoted to the results of the company’s work in 2005-2006 (former Transport Minister Sergei Frank became head of Sovkomflot in autumn 2004) and to its prospects. In fact, however, Putin and Frank discussed the prospects more: the president had signed the decree “About privatizing the state-owned shares of Novorossiysk Shipping Company (Novoship)” by means of merging them into the registered capital of Sovkomflot (‘Modern Commercial Fleet’), which was announced at the meeting.
The document (signed on Wednesday) launches the final stage of the deal to merge major Russia’s sea oil carriers. This idea was for the first time announced in 2003-2004. However, it was set afloat only after Frank had come to Sovkomflot. Now 67.1 percent of Novoship shares (owned by the Federal Property Management Agency) will be merged into the registered capital of 100-percent-state-owned Sovkomflot. The latter said it will carry out an additional issue of shares (its amount will be determined after consulting the agency). The state will pay for additional shares not with money, but with Novoship shares.
A source in Sovkomflot said the amount of the additional issue might be determined according to a “certain nominal” cost of Novoship shares, instead of their market value. The entire company was estimated at $808 million according to RTS quotations on Wednesday.
Novoship will become Sovkomflot’s subsidiary. Novoship’s treasury stock will not take part in the deal (19.67 percent more belongs to Novoship’s subsidiaries Intrigue Shipping Inc. and Novoshipinvest).
Nine months is given to the government to implement the decree. “We hope it will be done faster, so as to enter the new year as a united company,” said Frank. Novoship president Sergei Terekhin’s cell phone was not answering on Wednesday. However, in his interview to Kommersant on November 2, 2006, Terekhin expressed careful concern that Novoship might become absolutely dependent when becoming a subsidiary.
According to the united company’s last form (of which Kommersant has a copy), its balance assets will make up $4.6 billion, net assets -- $2.3 billion, turnover – over $1 billion, and its capitalization will exceed $5 billion. Analysts’ estimations are somewhat lower. Oleg Sudakov of Ak Bars Finans believes the united company will cost $3.5-4.5 billion. The form says that Sovkomflot-Novoship will take the fifth place in the world by the dead-weight tonnage of its united fleet. Sovkomflot is now ranked 16th, and Novoship – 20th. Last year, Sovkomflot’s managers believed the new company will be the fourth, and will go ahead of world-largest Teekay tank shipping company registered in the Bahamas. Yet, the latter has recently acquired OMI tank carrier, second-largest in the U.S., in consortium with Denmark’s DS Torm group, increasing the size of its fleet.
Beside the synergizing effect and supplementing the business of the two companies (Novoship is a classic tank oil carrier, while Sovkomflot aims at diversifying its business by means of transporting natural gas and more complicated transporting operations), Sovkomflot’s management names among the advantages the opportunity of future acquisition of foreign competitors. The company’s CEOs said it will happen in 2009, due to the decrease in international freight rates. “After four years of net growth of fleet, the rates have already began falling,” confirmed Mikhail Perfilov, Argus agency’s business development director. “The rates are expected to reach their minimal level in 2010, after which mono-hull ships will enter the market, which will make the rates grow again.”
However, experts see not just advantages in the merger. “It will be hard to achieve operational synergy, because both companies are state-owned. It will be difficult to manage the new giant,” warned Renaissance Capital analyst Eduard Faritov. “There will be a balance between saving on the scale and discounts on heavy bureaucracy.” Trust bank analyst Evgeny Shago agrees that here is the case when “state enterprises are less competitive than private ones”. Yet, this situation might be corrected by means of IPO. “We have to wait for the united company’s IPO,” said Oleg Sudakov, adding that Frank “likes the idea of bringing the company to the public market, and will lobby this idea”.
Sergei Ryzhkin
All the Article in Russian as of June 21, 2007
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