04 Mar 2013

Rostec prepares several IPOs


The head of State Corporation Russian Technologies comprising defence and civil assets with annual turnover of almost $17 billion promises to hold IPO in the 6 holdings of the Corporation. However, there is still a long way to the first public offering.

 “Most promising holdings are already prepared for the IPO. These are Russian Helicopters, Radio-Electronic Technologies, manufacturing electronic warfare means and avionics, Shvabe optical holding. They might enter the market in the following 4-5 years. Then Ruselectronics, UEC and Biotechprom are also likely to hold IPO”, Sergey Chemezov told.

Russian government handed armament intermediary Rosoboronexport, defence industry component works and plenty of non-core state assets in 2007 over to State Corporation Russian Technologies, which became Rostec in the end of the last year.

Part of the amalgamated companies was on the verge of bankruptcy, however, the State Corporation which consolidated the strategic assets enjoys the government support.

Sergey Chemezov, the Head of State Corporation Russian Technologies

Most prospective holdings that are already prepared for the IPO are Russian Helicopters, Radio-Electronic Technologies, manufacturing electronic warfare means and avionics, Shvabe optical holding.

According to Chemezov, in 2012 the revenues of the Corporation were 963 billion roubles and net profits were 40 billion. By 2020 the State Corporation plans to increase the revenues to 2.1 trillion roubles and double the profits.

Helicopters waiting for the sales opportunities

Russian Helicopters have already tried to hold an IPO in May, 2011, but had to postpone the public listing which was expected to bring $500 million, due to unfavourable market conditions.

The company considered this spring to be the closest offering opportunity.

 “Our experts believe that holding an IPO is unreasonable for Russian Helicopters at the moment. When the market grows we will enhance the assets’ profitability. We hope to accomplish it in the following years.”

 “Helicopter holding evolves very positively and currently has over 900 rotorcrafts for $14 billion in its order portfolio. Russian helicopters are fully booked until 2020. Customers call us all the time and ask to complete an order earlier, but we are simply not able to complete all the orders today.”

 “Now we are to develop services and maintenance. We open overhaul centres in India, China, and Latin America, as they are our key markets.”

“IPO is an important stage of Russian government strategy on helicopter building industry development. As we are well informed of the value of our assets, the IPO is to be held in the favourable market conditions.”

 “UEC (United Engine Corporation) might be among the last to conduct the public listing. Its financial condition is yet quite unstable and the enterprise has a considerable debt load. The company has raised credits for the asset purchase as the government assigned the task to have at least a control stock in all engine assets.”

We can’t split the cost

Last year Rostec closed two bigtime transactions. In November the Corporation sold 45.42% of the world’s largest titanium manufacturer VSMPO-AVISMA’s shares at $965-970 million.

In December of the same year the complex deal was closed. It resulted in the country’s largest AVTOVAZ car manufacturer sale to international alliance Renault-Nissan.

Meanwhile after completing the transaction in 2014 Rostec will remain AVTOVAZ’s co-owner.

 “We arrived at a decision of having the blocking stock of the civil or dual-purpose manufacturing companies”, Mr Chemezov told.

 “The blocking stock keeping decision was partially specified by our foreign partners, Boeing, Renault-Nissan. Carlos Ghosn, the president of Renault-Nissan, even addressed Mr Putin directly. He wanted us to remain participating in AVTOVAZ’s capital since they see us as a stability guarantor.”

 “Boeing was also interested in us keeping VSMPO-AVISMA equity participation. We have awarded an agreement on cooperation expansion. Deliveries are growing in scope. Besides, we have established R&D developing titanium alloys and production technologies.”

According to Mr Chemezov, the shareholding was sold in order to disburse a loan.

 “Originally we used about $1 billion loan funds to buy a share in VSMPO-AVISMA. The government subsidized us for interest financing during the crisis, but sooner or later we had to resolve a credit issue. We have discharged the indebtedness and even gained revenues. We are quite comfortable with keeping the blocking shares. ”

 “We are selling the JV equity, the shareholders of which are the Corporation management, to Gazprombank. In the future they are to decide what to do with it. They might find a strategic partner to participate in the equity, they might sell a part of their batch of stocks.”

The sale of the KAMAZ Russian largest truck manufacturer shareholding to Daimler owning 15% of the company along with EBRD might be the next Rostec assets’ bigtime transaction.

Serbank CIB (former Troyka Dialog), the Rostec’s AVTOVAZ and KAMAZ partner, has been negotiating the deal with Daimler for more than a year.

 “We have ceased the KAMAZ negotiations with Daimler so far as we can’t split the cost. We anticipate KAMAZ to be more expensive than Daimler appraises it. Given the latest financial report, we seem to be closer to the truth.”

KAMAZ’s IFRS accountancy is yet to come, but according to the Russian standards, the truck manufacturer had 4.3 billion rouble profits (increase in 64 times) and got the revenues’ growth at 5.3% which approximated to 111 billion roubles.

 “We have an agreement with Daimler and according to it neither of the parties is to obtain the control stock. They can increase their share to 49%, we don’t mind.”

 “We are not planning to sell our share, and moreover we don’t have a permission to do it at the moment. KAMAZ is a strategic enterprise for the country. KAMAZ products make about a half of Russian Armed Forces fleet. That is why we are to keep 49.9% of the stocks.”

Safety cushion

Rostec looks forward to replenish its budget with non-core assets sale. The assets were transferred to the Corporation in the course of its forming and after major enterprises restructuring.

According to Mr Chemezov, the sale might bring approximately 34 billion roubles. The most valuable assets are to be put up for an auction, some of them will be amalgamated into the holdings, reorganized and handed over to the strategic investors, interested in the sector, for example, the established Stankoinstrument holding.

In 2012 the Corporation sold some of its non-core assets at 3.2 billion roubles.

The money obtained from the stock selling are to be directed into two internal funds, the Investment fund is to obtain 75% of the money and Financial Recovery fund is to receive 15%. It will be the safety cushion in case of the world crisis.

 “Financial Recovery fund is aimed at disastrous businesses support and the rest financing is to be kept just to be on a safe side.”

 “We will create funds for reducing crisis impact. All the non-core assets sale revenues will be directed to the 2 funds: the Investment and the Financial Recovery. The Financial Recovery fund will also be used for the weakest enterprises’ support.”

 “The investment fund means could be invested into modernization. The sooner we conduct it, the easier we will overcome the following crisis. However, the Rostec situation has improved drastically since 2009.”

Source: Reuters