Secretive state conglomerate looks to exit its holdings

Secretive state conglomerate looks to exit its holdings


by Catherine Belton

It is several minutes into the interview and Sergei Chemezov, head of Russian Technologies, the secretive state holding that spans the country’s military-industrial complex and includes metals and cars, is still counting how many enterprises are under his command.

“Right now we have more than 660 enterprises, but this number is constantly changing,” he says, eventually.

The industrial conglomerate was created nearly five years ago at the height of President Vladimir Putin’s state capitalism to consolidate and support strategically important companies.

We need to make them interesting for investors. Just like a sweet in a pretty wrapper

Sergei Chemezov

Under Dmitry Medvedev’s more liberal presidency, it faced calls to be dismantled for swallowing billions of dollars’ worth of state money.

But now that Mr Putin has returned to the Kremlin for a third term, Mr Chemezov is emerging from the shadows to promote his holding’s strategic importance.

He says Russian Technologies is ready to capitalize on the huge investments made by the state with share listings and sales of stakes to foreign strategic partners. This ambitious programme will mark a second phase of development,  after what Mr Chemezov describes as the financial turnround of the hundreds of enterprises within Russian Technologies.

A close ally of Mr Putin since the two served as KGB operatives in the former East Germany and an influential part of an elite group of former spies and security men known as the Siloviki, Mr Chemezov insists his state-owned holding was not created as a vehicle for grabbing assets.

“From the very beginning we did not plan to create a state holding. We planned to restore order to the enterprises and create conditions that would make them interesting for investors,” he says.

“Most of the enterprises we acquired were either bankrupt or on the verge of bankruptcy – and on the eve of the crisis [in 2009] if we had not taken them, the majority of these enterprises would not exist today.”

Once the 660 assets have been consolidated into 17 holding companies, stakes will be sold to foreign investors in initial public offerings or strategic sales.

“Our task is to grow the capitalisation of these companies to the maximum and then bring them to market. We need to clean them from debts and non-core assets so that they become interesting for investors . . . Just like a sweet in a pretty wrapper,” he says.

In his vast, bright office with its high-tech screens and a tsarist-era crown in a glass case, Mr Chemezov cites Avtovaz, Russia’s biggest carmaker, as an example of a company that has benefited from Russian Technologies’ stewardship and one that could serve as a model for future foreign partnerships.

The state poured $2.5bn into Avtovaz during the 2008-09 economic crisis and sold a 25 per cent stake to Renault-Nissan for $1.17bn in2008.Renault-Nissanis already in talks to increase its stake in Avtovaz to a controlling one in a deal expected to be completed early next year.

“When we came to Avtovaz, the enterprise was practically on the verge of bankruptcy,” he says. Some of what was produced “was not accounted for”. “It was just removed, and that was it,” he says, blaming “bandits”.  Mr Chemezov says his team brought in police and security service officials to deal with this. Renault-Nissan has welcomed Russian state involvement and even objected when Russian Technologies proposed selling its stake. “They said: ‘No, stay. We want to work with you’,” he says.

But much needs to be done before Russian Technologies’ other holdings can emulate Avtovaz. For one, the holdings, whose finances are notoriously murky, must start reporting finances according to international accounting standards for at least three years before they can attempt an IPO.There also remain doubts over whether the state’s money has been well spent.

Mr Chemezov is unable to say how much state aid the conglomerate has received since its creation, including via budget subsidies, state loans and guarantees. But he stresses this was necessary to help stave off “serious consequences” – both socioeconomic and for Russian security – if the companies had failed, while their consolidation into Russian Technologies helped end unnecessary competition.
Critics say the scale of subsidies means it is little wonder the company has been able to revive the fortunes of the enterprises it took over.  The $2.5bn granted to Avtovaz alone would have been enough for Ford to build three smaller new car assembly plants from scratch, says one banker.

“Russian Technologies is just a black hole for budget money,” he says.