May 26, 2008
This is bne's Eastern Europe M&A weekly newsletter, a list of the top M&A stories in the region last week. You can receive the list as a plain text or html email or as a pdf file. To manage your delivery options:http://businessneweurope.eu/users/subs.php
TOP STORY 1. Severstal goes on shopping spree 2. CEDC and Lion Capital to acquire control of Russia's largest vodka company 3. Polymetal confirms Kerimov in talks to sell majority stake NEWS 4. RZD mulls cross-ownership with Deutsche Bahn 5. Abramovich wins first round against Berezovky 6. Bashkortostan could sell shares in energy companies 7. BP might have to repay TNK-BP over $400m 8. Gasunie to take a 9% stake in Nord Stream 9. INTERVIEW: Troika Dialog - the chosen one 10. Koks FY07 IFRS results - Strong performance on recent M&A JOINT VENTURES 11. Bombardier, Transmashholding to jointly manufacture locomotives in Russia RUSSIAN - RUSSIAN 12. Alisher Usmanov ups take in 7TV to 83% 13. AFI Development -To sell 50% of Aquamarin-2 for $200 mn 14. AFK Sistema emerges as 2nd suitor for Central Telegraph 15. Comstar could gain control over Central Telegraph 16. Kazimir Partners offers $350 mln for 2.5% of Polyus Gold 17. Pervouralsk Pipe ChelPipe increases control; buyout offer imminent 18. Russian Railways to head Udokan bid with an eye to BAM 19. Synterra closes acquisition of 51% in Teleport FOREIGN - RUSSIAN 20. Poland booze distributor CEDC deal could make it #1 in Russia 21. FAS rejects Flexitronics International's bid for Elcoteq 22. Lukoil-Poland reportedly to sell gas filling stations to Barter 23. Renault-Nissan to acquire IzhAvto RUSSIAN - FOREIGN 24. East One sells 60% of Dniprospetsstal 25. Lukashenko welcomes Russian Machines collaboration 26. Novatek could develop projects in Egypt 27. Russia's Ural Mining buys 51% of Czech firm Aircraft Industries 28. Sistema: Potential conflict between Shyam Telelink minorities 29. TMK's acquisition of IPSCO US pipe assets not yet closed 30. Uralkali may acquire Canadian competitors 31. VimpelCom will not buy MTN 32. VTB sells its stake in Finnish timber company Ruukki PRIVATISATIONS, AUCTIONS 33. FAS approves Onexim's bid to acquire 100% of TGK-4 34. Federal Property Fund to auction off Termoexport 35. Gazprom is not interested in Moscow Supply Company?
businessneweurope.eu 36. Management of high- and medium/voltage-transmission will be separated after UES break-up? 37. Official consolidation deadline set for regional gas distributors 38. Clarity on the sale of OGL-1 to come this week? 39. TGK-2 Sale of government's stake may be cancelled 40. UES -Sells 25% of Russian Utilities Systems to IES at $130 mn 41. UES board allows strategic buyers to defer payments 42. UES holds Board meeting 43. UES sells Penza Supply Company at auction 44. UES sells six research, engineering companies 45. UES sells Volgograd Supply, state Rostov Supply starting price 46. Uncertainty over Lenfilm, Gorky Film Studio privatization STATE OWNED COMPANIES 47. Novoship -Sovcomflot makes an obligatory offer 48. Russian Technology to receive stake in pipe producer KAZAKH DEALS 49. Kazakhstan plans to invest in Ukrainian grain terminal 50. Medvedev strikes Kazakh deals, plans stronger ties with former Soviet republics UKRAINE DEALS 51. Alliance sells Kherson refinery to WOG 52. Cabinet to revoke PSA with Vanco 53. Cyprus-based Interpipe Ltd acquires 31.9% of NITR 54. Dniprospetsstal: two more proxy owner changes 55. Minus one bidder for oblenergos? 56. Privatization of Odesa Portside Plant postponed again 57. Tatneft files a law suit over Kremenchug 58. Ukrainian prosecutors investigating prime minister's nominee for SPF head 59. UkrRos merges with UkrRos Grain company 60. Ukrtelecom: Government moves to wrestle UTEL from SPF OTHER DEALS 61. Probably the best lager in Turkey set to quit 62. Latvia govt to meet with TeliaSonera today over Lattelecom deal 63. Belarus aims to get $500m for BeST mobile operator 64. Azeri, South Korean companies sign joint projects 65. Completion of Roche deal major risk for Turkey's Eastpharma 66. Czech govt to sell Technoexport, Strojimport later this year 67. EU sets June 25 deadline for probe into Spar buy of Tengelmann Hungarian plus 68. Georgia launches power privatisation 69. Grontmij buys 75% stake in Hungarian engineering office Canor 70. Hungary M&A activity doubles to $10bn in 2007 71. Investment fund RC2 Cyprus increases stake in Romania's Albalact to 17% 72. Lotos buys 10% stake in North Sea exploration field 73. Magyar Telekom still looking at Slovene incumbent 74. OMV to take legal action in Mol bid 75. Polish developers Polnord and Pol-Aqua cancel merger deal 76. Polish steelmaker Konsorcjum Stali mulls share offering for acquisition 77. Polish Treasury gives green light to WSE privatisation 78. Polish treasury minister says privatisation of small firms can't wait 79. Polish tycoon Solorz-Zak's Polaris takes stake in insulin-maker Bioton 80. Prague airport, CSA to be sold in second half of 2009 81. Turkmenistan and South Korea sign bilateral agreements 82. Turkmenistan invites South Korea to invest in Caspian oil projects 83. TVN's acquisition of 'n' is a good example of bad corporate governance
businessneweurope.eu TOP STORY 1. Severstal goes on shopping spree bne May 26, 2008
Russian steel major Severstal last week went on a shopping spree. The company offered some $1.24bn in cash for US steelmaker and distributor Esmark, announced a binding agreement to acquire US high-quality automotive steel producer WCI for a total cash consideration of $140m, and announced plans to buy iron ore assets in Liberia.
Severstal offered $17 per share for all outstanding stock of the loss-making Esmark, matching Indian Essar Steel's bid made April 30. The Russian steel giant said that its bid has the backing of the United Steel Workers (USW) union, while the USW had rejected Essar's bid.
"In our view, Severstal is likely to win the bidding battle against Esmark, given its relatively low breakup fee (around $20m) and support from the union, which last week rejected the bid from Essar," commented UralSib.
Alfa Bank wrote in a note to investors last week: "we believe that if the deal goes forward it will fit in well with Severstal's existing American assets in terms of operation synergies and product portfolio. We believe that Severstal will be able to establish its reputation by turning around its recently acquired operations in the US."
Severstal is already the fourth-largest steel producer in the US and according to UralSib "the acquisition of Esmark will raise Severstal's current US steel-making capacity to 11.3m tons, which is close to Severstal's Russian operations (11.9m tons in 2007)."
The analysts generally seem to agree that Severstal will be able to extract synergies from its clutch of US operations, and that buying US-assets is a timely bet since the US economy will likely soon resurface from its current slump. Nonetheless, UralSib points out that: "the market is likely to take a negative view of this latest acquisition at it further dilutes the profitable Russian steel operations."
Regarding WCI, Deutsche Bank reckons that Severstal's offer is cheap. Including net debt of $191m, the offer equates to an enterprise value of $331m, and translates into EV/tonne of $270. The analysts comment that: "subject to management's ability to turn around and bring the planned synergies, it may be not a bad acquisition, in our view."
Finally, regarding Africa, Severstal announced that its subsidiary Lybica Holding is to buy a 61.5% stake in African Iron Ore Group, which owns iron ore deposits in the Putu Range in Liberia. Lybica will pay $37.5m for the stake, and will pay a further GBP2m to buy 6.29% in Mano River Resources, which mines gold, precious metal and iron ore in West Africa and controls the African Iron Ore Group.
2. CEDC and Lion Capital to acquire control of Russia's largest vodka company
businessneweurope.eu Renaissance Capital May 22, 2008
Event: Today (22 May), Vedomosti reported that CEDC and Lion Capital (a private equity fund) are looking to acquire stakes in Russian Alcohol, Russia's largest vodka company. CEDC would acquire a 40% stake and Lion Capital would acquire a 50% stake in the company, while management would retain the remaining 10%. CEDC will have an option to acquire a 10-20% stake from Lion Capital in 2010-2011. Total EV of the transaction is $600mn.
Action: We do not cover CEDC stock. The news confirm that the Russian vodka market remains attractive to foreign companies and that market consolidation is well under way
Rationale: CEDC is the largest vodka company in Poland and a leading distributor with strong positions in the Russian vodka market. In Mar 2008, CEDC announced the acquisition of the Russian vodka company Parliament. CEDC Group is also in talks to acquire Whitehall, a distributor and importer of the premium spirits in Russia. If the Russian Alcohol transaction is completed, CEDC will become the largest vodka company in Russia with at least a 10% market share. The acquisition should make CEDC a dominant player in the Russian vodka market, which, according to Business Analytica, had an estimated value of $17.1bn (retail prices terms) in 2007. bne comment: CEDC will pay $156.5m for the 40% stake, the company announced in a statement May 22.
3. Polymetal confirms Kerimov in talks to sell majority stake bne May 26, 2008
Polymetal released a statement May 19, confirming the earlier press reports that Suleiman Kerimov's Nafta Moskva is in talks to sell his stake of some 73% in the company, which is Russia's largest silver producer.
The statement did not explicitly name Kerimov, however, said that the company "notes the recent press speculation and confirms that it is aware of a series of discussions currently underway between the majority shareholder of the Company and variety of possible counterparties concerning the possibility of such counterparties each acquiring parts of the majority shareholder's stake in Polymetal."
The statement named Vitaly Nesis, bother of Polymetal CEO Alexander Nesis, as being involved in the discussions, yet went on to say:
"Polymetal is not a participant in these discussions and it is too early to predict their outcome. These discussions are ongoing and any or all of them may or may not lead to any transaction or transactions."
UBS commented on reports in the Russian business daily Vedomosti in a note to investors May 23. The analysts wrote:
"Vedomosti reports, citing its undisclosed sources, that the pool of investors including Czech fund PPF, Alexander Mamut and Alexander Nesis could be in
businessneweurope.eu discussions to acquire a stake in Polymetal from its controlling shareholder Nafta Moskva.
Comment: We find it hard to read into the above in relation to Polymetal's share price, as it would depend on the price paid in the possible acquisition."
NEWS 4. RZD mulls cross-ownership with Deutsche Bahn bne 22 May 2008
Russian Railways wants to IPO in three years time to raise $25bn, It is also considering a cross-ownership deal with Germany's Deutsche Bahn, its executives said Wednesday, May 21, according to Reuters.
"The IPO will raise around $25bn," Russian Railways senior vice president Fyodor Andreyev said, as cited by Reuters, saying the state might sell 25 percent minus one share.
RZD head Vladimir Yakunin told a joint briefing with Deutsche Bahn executives that RZD was considering participating in a similar privatization of 25% stake in Deutsche Bahn. "It is good idea. We will discuss it." He has previously argued in favour of cross-ownership between the two monopolies.
The Deutsche Bahn sale, expected to raise as much as 6 billion euros ($9.4 billion), is controversial in Germany due to layoff fears.
5. Abramovich wins first round against Berezovky bne May 26, 2008
Roman Abramovich on Thursday won the first round in a $4.3bn suit filed against him by fellow London-based Russian oligarch Boris Berezovky, reported newswires.
Judge David Mackie reportedly ruled that Berezovsky could not add charges of unlawful intimidation and unlawful threats to his claim against Abramovich.
Berezovsky claims that Abramovich pressured him to sell his stakes in oil firm Sibneft (which has since become Gazprom Neft) and aluminium giant RusAL for less than their market value. Abramovich denies the claims.
Neither billionaire was present at the London court in what was described by Judge Mackie as a "first and minor skirmish, with a relatively inconclusive outcome, in what is potentially a very large case," reported newswires.
6. Bashkortostan could sell shares in energy companies bne May 21, 2008
businessneweurope.eu Murtaza Rakhimov, the long-serving president of Bashkortostan, said on Tuesday May 20 that Bashkortostan could sell shares in six disputed Bashkir energy companies "We aren't going to sell them to anyone. But if good money is offered, we may as well sell them," Murtaza Rakhimov told reporters in Ufa, writes Interfax.
Until April 2006, Bashkortostan-owned Bashkirsky Kapital owned 64.84% of ordinary shares in Bashneft (RTS: BANE), a 58.09% stake in Bashkirnefteprodukt, a 58.16% interest in Ufaorgsintez (RTS: UFOS), a 65.72% stake in Novoil (Novo-Ufimsk Oil Refinery), a 52.6% stake in Ufaneftekhim (RTS: UFNC), and a 59.74% stake in Ufa Oil Refinery. These stakes were then sold off to private interests.
The Federal Tax Service (FNS) is disputing these sales. According to Interfax, an FNS representative in court accused "a group of persons close to Ural Rakhimov [son of Murtaza Rakhimov]" of selling the stakes to a "a company with a nontransparent structure of governance". The company is widely believed to be linked to the Rakhimov family.
The FNS' law suit led to the state taking ownership of controlling interest in the Ural- Invest, Inzer-Invest, Yuryuzan-Invest and Agidel-Invest companies.
7. BP might have to repay TNK-BP over $400m bne 23 May, 2008
BP may have to repay TNK-BP over $400 million due to a lawsuit brought by a minority shareholder.
Minority shareholder Tetlis has demanded that an agreement allowing TNK-BP to hire BP specialists be annulled. TNK-BP paid an average $685,000 per worker, including salary, housing, travel and schooling costs, per year, for BP specialists. Around 150 were hired over the last two years, writes Bloomberg.
Tetlis claims that the payments reduced TNK-BP's profit available as dividends.
"We consider the recent legal claim to stop BP specialists working in TNK-BP to be damaging to all our shareholders," TNK-BP chief executive Robert Dudley said Thursday, May 22, according to Bloomberg.
"The service we receive for BP specialists contains no element of profit for BP - it is on a cost recovery basis only," Dudley said.
Tetlis bought about 0.13 percent of TNK-BP Holding shares in April. TNK-BP Holding had profit of more than $5 billion last year on sales of more than $38 billion, Dudley said last month.
BP is seen as being under pressure after after the Federal Security Service searched the company's Moscow office earlier this week, two months after a similar raid.
businessneweurope.eu The Russian shareholders rejected a $20bn bid for their 50% earlier this year from Gazprom, which is now offering less, Energy Intelligence said Thursday, May 22, citing sources with knowledge of the situation.
The case is seen as a test for new president Dmitry Medvedev, who has promised an end to legal nihilism and corporate raiding using corrupt court and law enforcement practices.
In related news, BP and Gazprom are still in talks on setting up a strategic alliance, Stanislav Tsygankov, head of Gazprom's foreign projects department, told reporters at a conference last week.
Plans for a strategic alliance were announced in June 2007, when Gazprom signed a preliminary accord to buy TNK-BP's stake in the massive Kovykta gas field in the Irkutsk Region.
8. Gasunie to take a 9% stake in Nord Stream bne May 21, 2008
Stanislav Tsygankov, head of Gazprom's foreign economic activities department told Interfax that Dutch state-owned natural gas infrastructure and transportation company Gasunie will buy a 9% stake in Nord Stream AG in June.
Asked whether Gazprom would like to buy part of Dutch-Belgian gas pipeline BBL, Tsygankov said, "Yes it would, most likely," according to Interfax.
9. INTERVIEW: Troika Dialog - the chosen one Jason Corcoran in Moscow May 22, 2008
Andrei Sharonov is flattered that Troika Dialog has been dubbed the Kremlin's preferred investment bank, but gently demurs at such a lofty description.
Troika's managing director and chairman of board of directors knows more than most about the links between Russia's public and private sector, having served in the government for a decade, including nine years as deputy minister of economic development and trade.
"I think Troika is in a good position, but there are some sectors in the government where we have no mandate and it proves the market is competitive," he tells bne in an interview. "I think there is no preference in general for the participation of investment banks in deals with the government."
Troika's status as the Kremlin's banker of choice has been raised because of its key role in the recent sale of a 25% stake in state-controlled carmaker AvtoVaz to France's Renault, its mandates from the break-up of the electricity monopoly UES and its involvement in the privatisation programme of the state-owned rail giant RZD.
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businessneweurope.eu 10. Koks FY07 IFRS results - Strong performance on recent M&A Renaissance Capital May 21, 2008
. Koks, Russian integrated metals and mining company yesterday (20 May) released audited FY07 IFRS financials, which we regard as credit-positive overall. The key takeaway, in our view, is that the company managed to achieve very rapid revenue and margin expansion over 2007, while maintaining leverage at quite a comfortable level. . . Rapid expansion in 2007. Over the past year, the company's reported sales almost tripled to RUB46.4bn. The main revenue drivers were acquisitions undertaken by Koks in 2006 and 2007 - mainly those of steel producer Slovenian Steel Group (SIJ), iron ore miner KMA Ruda and pig iron producer Tulachermet. We note, however, that the financials tend to substantially underestimate revenues, as the acquisitions are reported in the income statement at purchase method (i.e. since the effective date on which the group gained control). Although pro-forma results have not been released, we estimate the consolidation of Tulachermet and SIJ since 1 Jan 2007 would have added RUB25- 30bn to the group's consolidated revenue. . . Business diversification and strong growth outlook. About 40% of last year's sales were contributed by steel and iron ore concentrate, with the rest evenly distributed between nickel and coal. The vanadium business contributed about 9.5%. In Dec 2007, the company disposed of its vanadium business, but we do not expect this to substantially affect its performance, since this segment's net income for 2007 was negative. Given the extremely favourable current steel and coal market environment, and the recent consolidation of a large iron producer (Tulachermet), we expect Koks's 2008 consolidated sales to be substantially stronger: Tulachermet's RAS sesults for 1Q08 show a 55% YoY increase in revenue. . . Solid profitability. Despite the operational challenges related to the integration of the recently acquired assets, Koks reported strong profitability, with an EBITDA margin of 32.9%, which is well in line with the pro-forma figure of 29% for 2006. Despite the incomplete revenue consolidation in the audited financials, we do not think pro-forma margin figures will differ substantially from the reported results. . . Debt to remain flat in 2008. As of YE07, reported debt/EBITDA was 1.9x, which we regard as adequate given the company's intensive M&A activity over the past year. According to the group's management, capex plans for 2008 amount to approximately RUB8bn, which in our view, could quite easily be financed with operating cash flows. We also note that despite rapid revenue growth in 2007, there were no negative working capital effects on the company's cash flow, and given the current commodity market situation we do not expect the company to face any unforeseen working capital growth in 2008. Overall, we do not think Koks will need to substantially increase debt in 2008, unless it decides to continue its M&A activity. Although a substantial portion of debt (about one-third) is short-term, we believe the company will be successful in refinancing this with bank loans. . . Bonds valued adequately. Since the beginning of April, both Koks's rouble bond issues have performed in line with the second-tier issues, with their spreads to OFZ
businessneweurope.eu tightening by 20-30 bpts. However, we think the current yield levels, at about 10%, still look attractive. Given the recent strong performance of TMK bonds, we still see 20-50 bpts spread compression potential in Koks bonds, although the lack of ratings, and consequent difficulties with obtaining repo financing could delay further price performance.
JOINT VENTURES 11. Bombardier, Transmashholding to jointly manufacture locomotives in Russia bne May 26, 2008
Canada's Bombardier and Russia's Transmashholding have agreed to jointly design and manufacture locomotives in Russia, the companies announced in a statement May 21.
The venture will be owned on a parity basis and will focus on the "development of new locomotives for the Russian and CIS markets, as well as for export to new markets," said the statement which was released following an agreement signed between the companies in the presence of Vladimir Yakunin, head of Russian rail monopolist Russian Railways (RZD).
The venture expects to profit from the huge demand for locomotives as RZD pushes to replace its worn out equipment.
"The Russian market for traction power rolling stock is one of the largest in the world. In 2007 72.5% and 84.2% of RZD's electric and diesel locomotives respectively had exceeded their operating life. RZD's anticipated demand for all types of locomotives amounts to 11,675 vehicles for the period of 2008-2015 and a further 11,722 vehicles for the period of 2016 - 2030," last week's statement read.
Bombardier and Transmashholding signed an agreement in May 2007 to set up two joint ventures to focus on the development of advanced propulsion technology for railway equipment and the production of key components for electric locomotives.
RUSSIAN - RUSSIAN 12. Alisher Usmanov ups take in 7TV to 83% bne May 26, 2008
Russian billionaire Alisher Usmanov has purchased a 33% stake in the sports channel 7TV, reported the Russian news agency FC Novosti last week.
Financial details were not reported, however, the channel has, over the last two years, reportedly grown in value from some $100m to between $180m and $200m, reported FC Novosti, citing anonymous analysts.
Usmanov increased his stake to 83% and plans to buy out the remaining 17% in the channel from Moscow Regional Trust Company before the end of 2008, reported FC Novosti.
businessneweurope.eu 13. AFI Development -To sell 50% of Aquamarin-2 for $200 mn UBS May 19, 2008
News According to Vedomosti, AFI Development is selling its remaining 50% stake in the Aquamarin-2 project (12 K sqm office space, 15 K sqm residential, 7 K sqm hotel) to Techsnabexport for $200 mn. The first 50% stake was sold at the end of 2006 for $150 mn. An independent valuation of the 50% stake was $165 mn as of Dec-07.
Comment We have not received confirmation of the deal and the price from the company as of yet, however if true, it would be positive for the company, as JLL's valuations can be conservative. The sale of the stake would provide AFID with additional cash to finance its development program.
14. AFK Sistema emerges as 2nd suitor for Central Telegraph UralSib May 22, 2008
Merger between Central Telegraph and MGTS proposed. Vedomosti reported yesterday that the Svyazinvest board has decided to consider a proposal by AFK Sistema (SSA - Buy; owner of 25% +1 share in Svyazinvest) to merge Central Telegraph with MGTS (an indirect subsidiary of AFK Sistema). Svyazinvest has reportedly taken the issue under consideration provided it can retain a controlling stake in the merged company. Svyazinvest owns 51% voting stake in Central Telegraph and 28% in MGTS.
AFK Sistema seeking to prevent CenterTelecom entering Moscow's fixedline market? Central Telegraph is the fifth-largest internet provider in Moscow, with a market share of 5.2% as of 1Q08 vs. 35.7% held by AFK Sistema subsidiary Comstar-UTS. In February this year the Svyazinvest board approved in principle a merger between Central Telegraph and CenterTelecom (ESMO - Buy), in which Svyazinvest also holds a controlling stake. Such a merger would allow CenterTelecom to enter Moscow's fixed-line market and become a powerful player in the region, as having a presence in both the city of Moscow and the surrounding Moscow region (where most competitors lack coverage) would represent a clear competitive advantage. For Comstar-UTS the addition of Central Telegraph would strengthen its position on the Moscow broadband market and offer potential synergies. However, we believe AFK Sistema's offer is most likely an attempt to prevent CenterTelecom from becoming a strong player on Moscow's lucrative fixed-line market.
Deal unlikely to happen; neutral. In our view a merger between MGTS and Central Telegraph is extremely unlikely given that both Svyazinvest and AFK Sistema would be seeking to own a controlling stake in the combined entity. However, the fact that the deal will be discussed may help to delay any merger between Central Telegraph and CenterTelecom. We view the news as largely neutral for the companies involved. We reiterate our Buy recommendation for both AFK Sistema and CenterTelecom as we believe they remain fundamentally undervalued, trading with respective upside of 20% and 76% to our target prices of $42/GDR and $1.2/share.
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businessneweurope.eu 15. Comstar could gain control over Central Telegraph Renaissance Capital May 21, 2008
Event: According to today's (21 May) Vedomosti and Kommersant, Sistema submitted a proposal to merge Central Telegraph (CT) with MGTS to Leonid Reiman at yesterday's Svyazinvest board of directors meeting.
Action: We reiterate our BUY rating for Comstar.
Rationale: Previously, according to Vedomosti, Svyazinvest's board of directors discussed a potential merger between Centertelecom and CT. If Comstar gains control of Central Telegraph it could 1) increase its Moscow broadband market share and 2) eliminate potentially more intense competition from the side of Centertelecom. However, we believe the deal between Centertelecom and CT is more likely to happen as the government would like to keep its assets and allow a government-owned entity to establish its presence in the Moscow market. CT (under the QWERTY brand) has an estimated 7% market share in Moscow. However, Moscow's broadband market is saturated with around 50% broadband penetration. Modest CT YoY revenue growth in 1Q08 according to RAS shows both intense competition leading to slower subscriber additions and a decrease in prices, and, hence, ARPU. Moreover, in order to create additional value, CT's acquirer should inject substantial investment into the expansion of CT's network. We think the value in CT lies in its real estate in Central Moscow which is valued at more than CT's market cap. However, as far as we know, the ownership of the real estate is currently being disputed in court.
Alexander Kazbegi, Ivan Kim
16. Kazimir Partners offers $350 mln for 2.5% of Polyus Gold bne May 20, 2008
Investment fund Kazimir Partners has offered $350 million for a stake of 2.5% in Polyus Gold that is currently held by the No. 1 Russian gold producer's subsidiary Jenington International, Kazimir Partners said in a statement, writes Interfax.
Russian law does not classify the Jenington stake as Treasury shares, so Polyus is not obliged to sell or cancel them within a year.
"For us they represent an opportunity either as a tool to acquire assets or to finance our investments," German Pikhoya, the gold producer's deputy CEO for strategy and corporate planning Pikhoya told Interfax last year.
Polyus Gold is involved in a corporate dispute between its co-owners and former business partners Vladimir Potanin and Mikhail Prokorov, who are splitting their assets.
Kazimir Partners was established in 1995 and manages the Kazimir Russian Growth Fund and Kazimir Russian Fund.
businessneweurope.eu 17. Pervouralsk Pipe ChelPipe increases control; buyout offer imminent UralSib May 26, 2008
ChelPipe increases stake to 85%. Chelyabinsk Pipe announced on Friday that it has increased its stake in Pervouralsk Pipe (PNTZ - Speculative Buy) from 62% to 85%. The seller was apparently Zelimkhan Mutsoyev, who sold his controlling stake in Pervouralsk Pipe to Chelyabinsk Pipe in 2004. The price of the deal was not disclosed.
ChelPipe Group may be aiming for IPO, but unlikely through ChelPipe. We believe ChelPipe may be consolidating its assets as preparations for a full-scale public offering for the entire Chelyabinsk Pipe Group. However, at this stage we doubt that ChelPipe will be used as a vehicle for a public offering; we believe it more likely that the shares of another company would be sold to investors.
Tender offer for Pervouralsk the key driver now. As ChelPipe's stake in Pervouralsk has risen above 75%, ChelPipe will be obliged to offer to buy out Pervouralsk minority shareholders at a price not less than the six-month average (nearly $30/share) and the price of the deal with Mutsoyev, which may have been at a premium of as much as 100% to the market, in our view.
Kirill Chuiko
18. Russian Railways to head Udokan bid with an eye to BAM bne May 22, 2008
Russian Railways, Urals Mining and Metals and state-run development bank Vneshekonombank have reiterated their decision to submit a joint bid in an auction for Udokan, Russia's largest untapped copper deposit, writes Bloomberg.
Kommersant reported April 10 that major copper producer Norilsk Nickel will not bid in the auction because a "political decision" has been made in support of the group led by Russian Railways.
Russian Railways said Wednesday May 21 that spending on the deposit would total $1.9 billion over 17 years. The rail operator will have a 25.5 percent stake in the venture, to be called Russian Copper. Urals Mining will own 49 percent and Vneshekonombank 25.5 percent, according to Bloomberg.
Russian Railways' interest in the project comes from hopes that mining the deposit will expand cargo transport along the Baikal-Amur rail line in eastern Russia by more than 1.5 million tons per year.
19. Synterra closes acquisition of 51% in Teleport bne May 26, 2008
businessneweurope.eu Russian communications operator Synterra has closed a deal to buy a 51% stake in Satellite Telecommunication and Information Systems (Teleport St Petersburg), reported the Russian news agency FC Novosti last week.
The stake was purchased from Teleport's founder and former director general Valery Kitaryev for an undisclosed sum, reported FC Novosti.
FOREIGN - RUSSIAN 20. Poland booze distributor CEDC deal could make it #1 in Russia Wood & Co May 23, 2008
(BUY) - CEDC announced its third Russian deal, which will likely make it the number one vodka producer in Russia, after just a matter of months from a zero start. It is paying USD 157 mil for a 40% stake in Russian Alcohol, the country's leading vodka producer, and USD 103mil for debt securities (coupon 8.3%-10.5%) which are exchangeable into additional shares in the company from 2010. It will be the trade partner in Russian Alcohol with the consumer-specialist private equity group Lion Capital LLP.
Russian Alcohol has two leading brands, Green Mark (a mainstream brand) and Zhuravli (a premium one). 2008 sales (net of excise) of the company are projected at over USD 500 mil, so the 40% stake is being bought for about a price-to-sales ratio of 0.8x. The conversion terms on the notes are based on a trailing EV/EBITDA multiple said by CEDC to be very similar to the terms of its first two Russian deals, i.e. high single digit EV/EBITDA. This implies, and CEDC has confirmed this, that the transaction is set to be immediately EPS-accretive to CEDC - for both portions of the deal. CEDC will fund the deal with cash on hand and equity portion, together with a little extra debt. As at 31/3/08, CEDC had USD 261mil of cash on its balance sheet and its pro-forma net debt / EBITDA ratio is currently running at about 3.5x. POSITIVE
21. FAS rejects Flexitronics International's bid for Elcoteq bne May 26, 2008
Russia's Federal Antimonopoly Service (FAS) has rejected an application by Flexitronics International GmbH, an Austrian subsidiary of Singapore-based electronic components maker Flextronics, to acquire 100% of voting shares in Elcoteq, the Russian subsidiary of Luxembourg-based electronics services company Elcoteq, reported the newswire Prime-Tass last week, citing a statement from the FAS.
The FAS said Flextronics International GmbH had not disclosed its ownership structure, reported Prime-Tass.
22. Lukoil-Poland reportedly to sell gas filling stations to Barter bne May 26, 2008
businessneweurope.eu Russian oil major Lukoil, which has recently been striking deals to buy filling stations in Bulgaria, Turkey and Estonia, has agreed for its subsidiary Lukoil-Poland to sell a chain of filling stations to Polish LPG terminal operator Barter, reported the Russian news agency FC Novosti last week.
Financial details were not reported.
Barter is reportedly buying gas preparation facilities in northern and central Poland, as well as a chain of natural gas filling stations and tanks to transport LPG.
23. Renault-Nissan to acquire IzhAvto bne May 22, 2008
Renault-Nissan will acquire the Izhavto car maker from Izhevsk in Udmurtia, Mikhail Dobyndo, Izhavto's chief executive, told reporters, writes Interfax.
"It has been decided today that the Izvevsk auto plant will be part of the alliance, and will be acquired by the alliance," Dobyndo said, as cited by Interfax.
RUSSIAN - FOREIGN 24. East One sells 60% of Dniprospetsstal Alfa Bank May 20, 2008
Kommersant has reported that East One has sold its 60% share in Dniprospetsstal, a specialty steel maker, to Russian VS Energy. As a result, VS Energy reportedly increased its share in the company to 75%, while Privat Group's share remains unchanged at 21%. Neither side has disclosed the deal's terms. We estimate the value of a 60% share in Dniprospetsstal at $600 - $650 mln.
We think East One sold its stake because it was able to fetch a premium price as a result of the favorable market situation, as well as a new business philosophy adopted by East One which prizes the value of the shareholder over the control of assets. In our view, East One was a better owner than VS Energy, although it is too early to make conclusions regarding the new owner's corporate governance. bne comment: while Alfa Bank labeled the news as "mixed", Ivan Kharchuk of Dragon Capital views things more positively and wrote: "In Ukraine, VSE also controls assets in the energy industry as well as in hospitality and real estate sectors. We consider the acquisition of Dniprospetsstal a private equity investment for VSE, implying a subsequent sale of the company to a strategic investor, and therefore view the news positively."
25. Lukashenko welcomes Russian Machines collaboration bne May 26, 2008
Belarus' president Alexander Lukashenko is interested in collaboration with Oleg Deripaska's Russian Machines, reported the newswire Prime-Tass last week, citing
businessneweurope.eu the president's press service following a meeting between Lukashenko and Deripaska.
According to the president's press service, Lukashenko and Deripaska did not discuss the acquisition of assets in Belarus, reported Prime-Tass.
"I have been aware of your proposals and interest of Russian companies in Belarusian engineering," said Lukashenko, reported Prime-Tass.
"We are ready to build relations on the basis of market, civilized methods."
26. Novatek could develop projects in Egypt bne May 20, 2008
Novatek is interested in projects in Egypt and plans to develop its cooperation with Egyptian companies, Prime Tass cites the company's CEO Leonid Mikhelson said Tuesday, May 20. In September 2007, Novatek acquired a 50% stake in a concession agreement to develop the El-Arish oil and gas block in Egypt.
27. Russia's Ural Mining buys 51% of Czech firm Aircraft Industries bne May 23, 2008
Russian company Ural Mining and Metallurgical Company has bought 51% in Aircraft Industries, a Czech company producing L-410/420 aircraft, from PAMCO INT, Aircraft Industries board chairman Pavel Vach told CTK today.
Aircraft Industries, a unit of PAMCO INT, plans modernisation of the L-410/420 aircraft and raising its production. The deal will secure funds for the company's plans, said Vach. The company produces 8-to-10 new planes a year at present, and its ambition is to raise the amount to 15-18 aircraft.
Aircraft Industries was set up with the aim of integration of selected promising projects in the aviation industry. In 2005, it bought bankruptcy assets of aircraft producer Letecke zavody Kunovice, and a year later it resumed the production of the L-410 aircraft. Last year, it supplied 7 L-410 planes to its customers and sales amounted to CZK630m and profit stood at CZK110m, said Vach.
28. Sistema: Potential conflict between Shyam Telelink minorities UBS May 23, 2008
News Jindal Securities, owning 16.7% of Sistema's Indian operator Shyam Telelink, is claiming another minority shareholder-Shyam Telecom (part of Shyam Group of India, holding 33% of Shyam Telelink) is violating its Jindal's rights and addressed it to the Indian regulatory authorities. According to Jindal Securities, Shyam Telecom was de-listed from Indian stock exchanges under the precondition of conducting the Shyam Telelink IPO, but 51% of the company was sold to a strategic investor-
businessneweurope.eu Sistema. Jindal Securities is asking Shyam Telecom to buy-out its 16.7% stake at $2.8 per share or $42 mn, while Shyam Telecom is ready to pay $0.23 per share (Sistema paid $1.3 per share). RBC-Daily cited Sistema's CEO, Alexander Goncharuk, who suggested minorities wait to cash-out to enjoy their stakes' significant increase in value.
Comment According to Indian legislation, Sistema could increase its stake in Shyam Telelink from the current 51% to a maximum 74%, leaving only a limited opportunity to cash-out for minority shareholders. It is unlikely that the potential court cases could hinder Shyam Telelink's development, as the claims are generally addressed to Shyam Telecom. We consider the news to be neutral with a negative twist.
29. TMK's acquisition of IPSCO US pipe assets not yet closed bne May 26, 2008
TMK last week held an analyst conference call on its 2007 results. UBS summarized the call and included a comment on the status of TMK's acquisition of IPSCO US pipe assets:
"The deal to buy IPSCO's US pipe assets from Evraz has not yet been closed, but it is nearing completion as the company expects to receive all the necessary regulatory approvals soon. The North American pipe market is doing better this year, and the assets should produce more pipes this year than the 800 k tons last year."
30. Uralkali may acquire Canadian competitors bne May 26, 2008
Russian potash producer Uralkali said last week that it might acquire Canadian competitors to raise output, reported the newswire Bloomberg.
31. VimpelCom will not buy MTN Renaissance Capital May 22, 2008
Event: According to Dow Jones newswire, VimpelCom is not in talks to buy a stake in South African mobile phone operator MTN Group Ltd. According to the newswire, VimpelCom has held talks with MTN in the past, but said that the talks were not linked to any imminent deal.
Action: We reiterate our BUY rating for VimpelCom.
Rationale: Due to the size of MTN and potential obstacles regarding deal financing the probability of the acquisition is low, in our view.
32. VTB sells its stake in Finnish timber company Ruukki Renaissance Capital May 22, 2008
businessneweurope.eu Event: Yesterday (21 May), quoting Finnish timber company Ruukki Group, Reuters reported that VTB had sold its 10% stake in Ruukki. The sale price was not disclosed, and there were no comments from VTB on the information. In February VTB acquired the 10% stake in Ruuki Group for EUR77mn ($112mn), and the press inferred that the investment was linked to Ruukki's projects with the Russian government.
Action: Neutral for VTB stock, in our view.
Rationale: We generally welcome VTB getting rid of non-core investments like Ruukki. However, we await information on the sale price before drawing conclusions on the deal's financial impact.
PRIVATISATIONS, AUCTIONS 33. FAS approves Onexim's bid to acquire 100% of TGK-4 Alfa May 23, 2008
According to Interfax, the Federal Antimonopoly Service (FAS) has approved a bid by Onexim Holdings Limited, owned by Mikhail Prokhorov, to acquire 100% of TGK-4. According to Interfax, Onexim currently owns 27.05% of the company. However, the holding will receive an additional stake of more than 50% after the close of a deal to acquire the government's stake.
Onexim acquired its 27.05% stake in TGK-4 in April. The deal's price works out to R0.027/share ($0.00115), which is 14% higher than the current market price. The FAS approval opens up the way for Onexim to continue to increase its stake, thus making it subject to the mandatory buyout requirement stipulated by Russian law for a company that reaches 30% ownership.
Moreover, Onexim representatives confirmed yesterday that the company will announce a buyout offer for TGK-4's minorities in accordance with Russian corporate law.
34. Federal Property Fund to auction off Termoexport bne May 26, 2008
Russia's Federal Property Fund will hold an auction to sell 100% of foreign trade company Termoexport, reported the Russian news agency FC Novosti last week.
The starting price will be RUB42.47m, or some $1.8m, reported FC Novosti, without mentioning a date for the auction.
35. Gazprom is not interested in Moscow Supply Company? UBS May 22, 2008
News Gazprom is unlikely to bid for the 51% stake in Moscow Supply Company that is being sold by UES, RBC Daily reports without naming its sources. Instead, a key contender for the stake is a consortium led by an unnamed financial institution. UES
businessneweurope.eu will complete collecting bids for the stake today. The winner will be announced on May 27th. The starting price for the stake is Rb11.3 bn ($480 mn).
Comment A surprising piece of news that suggests a lower chance for UES to sell its stake successfully and therefore it is negative for Moscow Supply Company minority shareholders. At the same time, we note that RBC Daily's information still needs to be confirmed.
We have been considering Gazprom to be a key contender for Moscow Supply Company because we see substantial synergies between the business of Mosenergo (a generating company covering the Moscow region that is already controlled by Gazprom) and Moscow Supply Company, but also because press-reports have been confirming Gazprom's interest (although without mentioning their sources). The synergies are present mainly because the integration of the supply business (i.e. retailing) with generation should reduce the risk of losing the region's client base to competing retailers (this is because a competing retailer may have difficulties sourcing electricity from Mosenergo).
36. Management of high- and medium/voltage-transmission will be separated after UES break-up? UBS May 21, 2008
News The UES Management Board has setup a separate business unit "Distribution Holding" to manage UES's stakes in its inter-regional distribution companies, Interfax reports. From a legal standpoint, UES's stakes in the inter- regional distribution companies are currently managed by the Federal Grid Company in accordance with a corresponding management agreement between UES and the Federal Grid Company. The agreement expires after the break-up of UES. The government, the Federal Grid Company and UES were discussing whether to prolong this agreement for 3 years.
Comment Setting up a separate business unit signals (a) that UES is starting to create a management team for the Distribution Holding (which will emerge after the break-up of UES, and will inherit UES's stakes in the inter-regional distribution companies); (b) the probability of prolonging the agreement between UES (represented by the Distribution Holding after the break-up) and the Federal Grid Company concerning the management of the stakes in the inter- regional distributors is declining.
The outcome of this would be that the function of the management of high voltage transmission (owned by the Federal Grid Company) and medium/low voltage distribution (owned by the Distribution Holding) is likely to be separated after the break-up of UES. This separation would eliminate any conflict of interest, and therefore would be somewhat positive for minority shareholders of the Distribution Holding and the underlying inter-regional distributors.
37. Official consolidation deadline set for regional gas distributors Renaissance Capital May 20, 2008
businessneweurope.eu Event: Yesterday (19 May), the government's press service published Order #690-r (signed by Vladimir Putin on 15 May), which stipulates the list of actions to be performed for the realisation of President's Decree #464, of 8 April on the further development of Rosneftegas and changes to the list of strategic assets owned by the government. As we wrote in CIS Morning Monitor, on 10 Apr, the decree marked the start of the long-awaited consolidation of gas distribution assets into Gazprom. It set out the transfer of federal stakes in 78 gas companies (including 74 regional gas distributors) to Rosneftegas, which should later exchange these assets for a 0.89% stake in Gazprom with one of Gazprom's subsidiaries.
The Order added little new information. First, it repeatedly instructed the Federal Property Agency (Rosimushestvo) to complete the transfer of federal stakes to Rosneftegas via its additional share issue, although didn't repeat the six-month deadline for this action stipulated in the President's Decree. Second, it prescribed to include the federal stakes in question into the privatisation plan for this year.
Action: The news is marginally positive for the regional gas distributors, in our view.
Rationale: First, the order's issuance confirms to us that the industry's consolidation is on track. Second, we think it sets an official deadline for its full completion, as it envisages that the federal stakes in regional gas distributors are to be privatised (which is equivalent to their transfer to Gazprom from Rosneftegas) before the end of this year.
38. Clarity on the sale of OGL-1 to come this week? Troika Dialog May 19, 2008
More clarity on the OGK-1 sale may come this week, Interfax cited CEO Vladimir Khlebnikov as saying last Friday.
OGK-1 is currently conducting abuyback of up to 159 mln shares, equivalent to 0.356% of its equity, at a price of R2.51698 ($0.107) per share. This could provide an indication of the price that UES expects from the potential strategic investor for the state's stake and new shares. However, we do not expect a buyout offer from a strategic. UES is negotiating with a consortium consisting of three partners, headed by Complex Energy Systems (CES). Each of the three participantsis likely to obtain around 24% of OGK-1 shares post placement. There is nofinal agreement yet that the partners of the consortium will receive equalstakes, but the likelihood of that happening is very high, CES Vice President Marat Bashirov said earlier.
As none of the three companies in the consortium would acquire a stake of more than 30% in OGK-1, none would be required to tender a buyout offer to minority shareholders at the placement price. Concordantly, it seems that minority shareholders will probably not be able to realize any potential strategic premium. In addition, it is possible that the consortium will have a grace period until 3Q09 to pay for the state's stake, Vedomosti previously reported.
We would advise OGK-1 shareholders to submit the maximum amount of shares possible into the ongoing company buyback (May 26-July 9). The current free float is 6.2% excludingGazprom's stake and 8.3% including it. Thus, the buyback is for 5.8% of the free float excluding the gas giant and 4.3% including. The payment
businessneweurope.eu willbe in cash and must be made no later than 90 calendar days from the end ofthe buyback period.
Alexander Kotikov, Igor Vasilyev
39. TGK-2 Sale of government's stake may be cancelled UralSib May 26, 2008
Uncertainty over buyout offer increases The UES board of directors on Friday set a deadline of 31 May for Sintez to pay for the government's stake in TGK-2 (TGKB - Under Review), for which it won an auction on 14 March. UES said it will cancel the deal if the deadline is not met. According to UES, 8 May was the initial payment deadline for Sintez, which is a medium-sized diversified Russian oil and gas holding. Kommersant reported that the delay may be due to a conflict between Sintez and Germany's RWE, its partner in the deal, as the two sides are negotiating terms on their joint venture. In our view, this news increases the uncertainty over the timing of the imminent buyout offer to TGK-2 minority shareholders; furthermore, the deal could ultimately be structured in such a way that neither Sintez nor RWE exceed the 30% threshold that would trigger a buyout offer. TGK-2 is currently trading at a 18% discount to the deal price of $0.0011/share, and we believe the stock may come under further pressure. We would not recommend investing in TGK-2 at the moment.
Less than controlling stake on sale TGK-2's additional share issue represents 24% of its extended share capital and was sold concurrently with the indirect government's stake. Sintez bought about 74% of the additional shares after winning the auction on 14 March, with the remainder bought by TGK-2 minorities that exercised their pre-emptive rights (the largest of which is Prosperity Capital Management (PCM), a portfolio investor holding a stake of about 30%). The government's indirect stake represents 25% of TGK-2's expanded share capital, hence the buyers cannot receive more than 43% of the company's shares. To increase their stake beyond controlling, the strategic investors would need to buy TGK-2 shares on the open market or else strike a deal with PCM.
Future prospects depend on investment program TGK-2 operates 2.6GW of generation capacity and is located in central and northwest Russia - a developed region with high electricity demand. TGK-2's development strategy envisages an overhaul of its assets, which are highly depreciated and currently operate with lower fuel efficiency and utilization rates than the TGK average.
TGK-2 is trading at EV/installed capacity of $522/kW, which is 14% higher than the domestic average of $456/kW but significantly lower than the multiples for comparable international peers ($1,012/kW for emerging market and $1,436/kW for developed market peers).
Matvey Taits, Pavel Popikov
40. UES -Sells 25% of Russian Utilities Systems to IES at $130 mn UBS
businessneweurope.eu May 23, 2008
News UES sold 25% of Russian Utilities Systems (RUS) to Integrated Energy Systems (IES) at Rb3.1 bn ($130 mn at the current exchange rate), Interfax reports, referring to sources in UES and IES. The selling price was equal to the initial price set by UES. IES has now accumulated 100% in RUS. RUS is a supplier of electricity, heat and water in a number of regions in Russia.
Comment An expected development because IES appeared as the only realistic contender for the stake. The acquisition now gives IES an opportunity to integrate its operations in the generation of heat and electricity (via TGK-5, 6, 7, 9) with the business of retailing electricity, heat, and supplying water.
41. UES board allows strategic buyers to defer payments UralSib May 23, 2008
May postpone buyout offers in several generation and retail companies. The UES board of directors on Tuesday permitted the buyers of stakes in a number of generation and retail sales companies to defer payment until 3Q09, Interfax reported. The buyers of UES' stakes in OGK-1, TGK-6, TGK-7, TGK- 11, Kuzbassenergo, TGK-14, Mosenergosbyt, and the St. Petersburg and Tyumen electricity retail companies have until 1 October, 2009, to make final payments. This also means that until buyers pay in full for their shares, they will not be transferred to their accounts, thus the ownership threshold for making a buyout offer will not be exceeded. As a result, we expect shares in these companies to be valued at a 20%- 30% discount to the expected buyout price in the medium term, but this discount should gradually narrow as the expected buyout date approaches, thus implying a 15%-20% annual return.
Raising money for FSK and RusHydro investment programs. UES sold its stakes in thermal generation companies during their SPOs to raise cash for the investment programs of FSK (the federal grid company) and RusHydro. The stakes on sale represent the government's indirect stake in each company, and they are priced the same as additional shares issued at open auction. TGK-6 and TGK-7 were bought by Integrated Energy Systems, TGK-11 was bought by Mikhail Abyzov's Group E4 and Kuzbassenergo was purchased by SUEK. UES is selling its stakes in electricity retail companies as part of its plan to sell-off non-core assets. The auction for controlling stakes in Mosenergosbyt and St. Petersburg Retail Company will take place at the end of May, and the auction for the Tyumen Retail Company is planned for 18 June.
We do not recommend investing in thermal generation at the moment. We maintain our positive view on Russia's utilities sector, as completion of UES restructuring approaches and liberalization of the electricity market proceeds on schedule. Moreover, private capital continues to flow into the sector. However, the wave of strategic sales of thermal generation companies is almost complete, and only OGK-1 and TGK-14 still remain on sale. Purchases at a premium to the market price and their subsequent buyout offers were the main driver for the shares of generation companies during the past 18 months, despite the financial performance of these companies lagging. We recommend exiting OGKs and TGKs investments via the buyout offers, and to invest either in RusHydro or in the electricity distribution sector.
businessneweurope.eu //IMG:ues230508.gif:IMG//
42. UES holds Board meeting Deutsche UFG May 26, 2008
RAO UES held a supervisory meeting of its Board of Directors on Friday. The Board finally decided to cancel its agreement with FSK on managing electricity distribution grids (MRSKs).
From 21 May, distribution grids are being overseen by the newly created business unit MRSK Holding. Under UES breakup on 1 July 2008, MRSK Holding will become a separate state- controlled entity. We consider the Board's decision as logical.
On a separate note, UES stated in a press release that it had sold the 21.3% stake in Bashkirenergo (installed capacity of 5.2 GW) to Unitrade at the starting price of USD464m (RUR11bn). According to Interfax, the entity is linked to KES. Earlier, a few companies including AFK Sistema, E4, etc are said to have been in the fray to acquire the stake.
Yury Udaltsov, a top UES official, said on Friday that UES expects capacity market to be launched from 1 July. He also noted that UES is preparing to start the market of system services from 1 January 2009.
Dmitry Bulgakov, Mikhail Rasstrigin
43. UES sells Penza Supply Company at auction Alfa May 23, 2008
Yesterday, UES sold its stake in another supply company at auction. The result of the auction is summarized in the table below. As can be seen, Penza Supply Company was sold at a significant premium over its starting price (88%) to Stroy-Deko Company. It is unclear whose interests the buyer represents.
The company was sold as part of UES's plan to sell its stakes in the supply business prior to its breakup on July 1, 2008. The next auctions for the remaining supply companies will be held this month and next.
We see this news as NEUTRAL for UES, because the supply business contributes only marginally to the company's valuation. Moreover, as the deal's price implies a 3% discount to the company's current share price ($0.26), we believe this news is also NEUTRAL for the minorities of Penza Supply Company.
44. UES sells six research, engineering companies bne May 26, 2008
UES has sold at open auctions 75%+1 stakes in six of its research and engineering companies for a total of RUB15.8bn, reported the newswire Prime-Tass, citing a statement from UES Tuesday May 20.
businessneweurope.eu Prime-Tass provided the following summary, which lists Company, starting price in billions of rubles, selling price in billions of rubles, buyer:
UES Engineering Center, 2.300, 4.200, EnergoAuditControl
Urals Electric Power Engineering Center, 1.125, 4.275, Energo Engineering Center
Northwestern Power Engineering Center, 0.625, 2.275, Energo Engineering Center
Siberian Power Industry Research and Development Center, 0.950, 2.275, Regional Company Reserve
Yuzhny Electric Power Engineering Center, 0.625, 1.975, Areks
Povolzhye Electric Power Engineering Center (Volgaenergoproekt), 0.360, 0.810, East-M
45. UES sells Volgograd Supply, state Rostov Supply starting price Troika Dialog May 19, 2008
Khimpromtorg emerged the winner of UES' 49% stake in Volgograd Supply at Friday's auction for R581 mln, only slightly above the starting price of R580 mln, UES reports. This implies a value of $0.124 per share, or 13% above the current RTS offer. A source close to the process said that the winning company, which beat out one other contender, represents the interestsof LUKoil.
LUKoil owns a large minority stake in Volgograd Supply through LUKoil-Energogaz and it was earlier reported that the Volgograd regional administration intends to set up a JV with LUKoil to participate in the auction.
As the stake is over 30%, the winner is required by law to tender a buyout offer to minority shareholders at no less than the acquisition price. However, we note that we have witnessed several cases where no buyoutoffer was tendered in due time after the auction. While these conflicts can end up in court, the suits can be lengthy and the outcomes uncertain.
On a separate note, the starting price for UES' 48.4% stake in Rostov Supply was announced at R475 mln, half of the old starting price, Interfax reports. This translates into $0.0101 per share, which is below the RTS offer.The auction is scheduled for June 17.
On May 29, UES will auction off its stakes (all of which exceed 49%) in Ivanovo Supply, Arkhangelsk Supply, Bryansk Supply, Oryol Supply, Komi Supply and Stavropol Supply.
Alexander Kotikov, Igor Vasilyev
46. Uncertainty over Lenfilm, Gorky Film Studio privatization bne
businessneweurope.eu May 26, 2008
Russia's state property management agency has scrapped plans to privatize Lenfilm and Gorky Film Studio and instead intends for the two film corporations to be merged into a state-owned operator or holding company, reported the newswire Interfax last week.
However, there appears to be some uncertainty over the future of the two film corporations since last week, an alternative government source told Interfax: "It is true that there has been a conference on this issue, but no decision was made to set up a state concern."
STATE OWNED COMPANIES 47. Novoship -Sovcomflot makes an obligatory offer UBS May 23, 2008
News According to AK&M, Sovcomflot has accumulated 96.83% of Novoship's common shares and has made the obligatory (to accept) offer to remaining minority shareholders at the same share price level set in the previous voluntary offer- Rb81.82/share ($3.45/share). The obligatory (to accept) offer was made in accordance with Russian company law according to which the entity accumulating more that 95% of another company's shares has the right to launch the squeeze-out process.
Comment The obligatory offer was an expected development, as Sovcomflot already launched its voluntary offer after it received the controlling stake in the company. In our view the offer is made on friendly terms to minorities; the offer price is above our price target for Novoship's common shares.
48. Russian Technology to receive stake in pipe producer bne May 26, 2008
The Russian Technology Corporation is expected to receive a 25%-1 stake in Large- Diameter Pipe Producer (ZTBD) from the government after the auction to sell the stake was cancelled, reported FC Novosti last week.
KAZAKH DEALS 49. Kazakhstan plans to invest in Ukrainian grain terminal bne May 23, 2008
Kazakhstan is planning to acquire a stake in one of Ukraine's Black Sea grain terminals.
Berik Ospanov, Director of the Agriculture Ministry's strategy department, said the plan was part of Kazakhstan's strategy to expand its grain export channels, Kazakhstan Today reported.
businessneweurope.eu "The ministry takes all measures to expand its opportunities of grain export channels," Ospanov said.
"With this aim a grain terminal was built in Baku, a work is in the process on construction of similar terminals in ports of Georgia and Iran, it is planned to acquire a share in one of the grain terminals of Ukraine, located at the Black Sea."
Kazakhstan has a temporary restriction on grain exports to ensure domestic food supply, but its long-term aim is to become one of the world's top five grain exporters.
"In order to expand exports we have to get access to the Caspian Sea and the Black Sea. We are constructing grain terminals there in order to get the shortest ways to Europe, Northern Africa, Asia and the Arabian countries," Ospanov said.
50. Medvedev strikes Kazakh deals, plans stronger ties with former Soviet republics bne May 23, 2008
The presidents of Russia and Kazakhstan agreed to deepen cooperation in energy and a number of other fields during Russian President Dimitry Medvedev's first official visit abroad since his inauguration earlier this month.
Medvedev arrived in Astana yesterday May 22. The new president stressed that strengthening Russia's ties with Kazakhstan, as well as other former Soviet republics, would be a priority of his time in office, reported The Moscow Times.
"My visit to Kazakhstan is a demonstration of the vector of our cooperation, special trust and brotherhood that was established between Kazakhstan and Russia," Medvedev said during talks with Nazarbayev.
Energy was at the top of the agenda for the meeting, and the two presidents agreed to push ahead with the Caspian gas pipeline, which will transport gas from Kazakhstan and Turkmenistan through Russia.
The issue is an important one to Russia since Central Asian countries have increasingly been exploring alternative routes to deliver their oil and gas to world markets.
Nazarbayev said that Kazakhstan would choose its pipeline routes based on their economic efficiency.
"We often hear that Kazakhstan allegedly wants to bypass Russia. We aren't going to bypass anyone. Every country will seek profit and choose whatever route is better," he said at a press conference after the talks.
The two countries plan to draw up a long-term agreement on economic cooperation and integration.
"We proposed Russia to prepare a long-term agreement on economic cooperation and integration between our countries. This is an important document since the level
businessneweurope.eu of our economic development will allow us to act in a strategically new way" Nazarbayev said.
Russia and Kazakhstan plan to cooperate on specific areas including the joint development of Russia's Glonass satellite system.
An agreement has also been signed between Kazakh sustainable development fund Kazyna and the Russian state nanotech corporation to work together on nanotechnology innovation.
UKRAINE DEALS 51. Alliance sells Kherson refinery to WOG Renaissance Capital May 20, 2008
Event:Yesterday (19 May), in an interview with Kommersant, Musa Bazhaev, president and co-owner of Alliance Group, said that the group had completely sold its share in Kherson refinery to West Oil Group (WOG). According to our estimates, as of mid-2007 Alliance Group indirectly owned 60% of Khersonnaftopererobka and about 84% of CJSC Kherson refinery. The sale took place last year with an option for Alliance to buy back its stakes. Bazhaev said that the option was valid until the end of last year, but he believes that WOG may allow Alliance to realise it in future, after the completion of the refinery's modernisation. According to Bazhaev's estimates, the reconstruction of the refinery will take at least four years.
Action: Our rating and target price for Khersonnaftopererobka are currently Under Review.
Rationale: We estimate that WOG should have collected 87.6% of Khersonnaftopererobka and about 95% in CJSC Kherson refinery. In summer 2007 when Alliance Group and WOG signed a strategic partnership agreement, WOG undertook to share Alliance Group's $0.8bn investment commitments for the modernisation of the refinery. We believe WOG is capable of both financing the reconstruction of Kherson Refinery's assets and providing stable demand for its products in future (WOG owns about 300 petrol stations in 18 regions of Ukraine). We expect that any clarification of WOG's investment plans and the refinery's modernisation schedule should become important catalysts for the stock. However, we are concerned that WOG may not be interested in retaining a small minority stake in the free float and may squeeze out the minorities, as the current Ukrainian legislation does not require any fair buy-backs.
Irina Elinevskaya
52. Cabinet to revoke PSA with Vanco Concorde Capital May 22, 2008
Yesterday the Vice Prime Minister Alexander Turchinov said the Cabinet decided to revoke the Production Sharing Agreement (PSA) with Vanco International for the development of the Prykerchenska oil and gas field on the Black Sea shelf, on the grounds that it was "a corrupt deal". On April 25 the Ministry of Environmental Protection terminated Vanco's license. On May 16, Vanco's Senior Vice-President
businessneweurope.eu Jeffrey Mitchell disclosed their financial partners (DTEK, Shadowlight Investments and Integrum Technologies) and called for renewed negotiations with the Tymoshenko government. He also said that Vanco would seek international arbitration if an agreement is not reached.
53. Cyprus-based Interpipe Ltd acquires 31.9% of NITR Galt & Taggart May 21, 2008
Interpipe Limited (Cyprus) acquired a 31.92% stake in Interpipe Nyniodniprovsky Pipe-Rolling Plant (PFTS: NITR), the company's press-service reported on Monday. Interpipe Ltd previously controlled 27.03% of NITR with 60% controlled by Saleks Investment Limited (Cyprus, also affiliated with Interpipe).
G&T verdict: It seems likely that the increased NITR stake is the result of a share buy-back on the market which will reduce the liquidity of the stock.
Alexey Rudenko
54. Dniprospetsstal: two more proxy owner changes Foyil Securities May 19, 2008
On May 16, Dniprospetsstal [DNSS UZ, BUY] disclosed in an official filing further changes in nominal ownership structure. Miralton Investments Ltd. and Stapleton Services Ltd. are no longer owners (formerly about 15%), whereas Ambelaria Investment Ltd. and Folkdate Trading Ltd. became owners (each about 15%).
Earlier on March 31, Stapleton Services Ltd. acquired a 15% stake (which it has just sold over) from Podhal Investments Ltd.
Dniprospetsstal is the only Ukrainian producer of a wide variety of specialty steel products. The company is controlled by EastOne (at least 60.008%), the ultimate holding company of Viktor Pinchuk, the second-richest Ukrainian man. The Privat Group controls 34.2%.
Our view: We think that these developments are NEUTRAL formal changes not related to any ultimate beneficiary changes. On May 23, Dniprospetsstal will conduct an EGM, the agenda including Boards re-election and registrar change. We have two explanations. Firstly, Privat has initiated this EGM and EastOne is conducting defensive maneuvers. Alternatively, EastOne if formalizing its control over the company (for several years, Dniprospetsstal's register was out of order), and the ownership changes together with May 23 elections are the necessary formalities.
We doubt that EastOne intends to sell control or will be unable to deal with Privat, and continue to be upbeat regarding Dniprospetsstal. The postponement of the IPO of another EastOne asset, the Interpipe Group, from 2008 to 2009, means that Dniprospetsstal's IPO may also be delayed beyond 2009-2010. Nevertheless, for the next two years, Dniprospetsstal is to work on the announced USD 200 mln CapEx program, and the likely IPO delay does influence the short-term prospects.
55. Minus one bidder for oblenergos?
businessneweurope.eu Galt & Taggart May 19, 2008
Switzerland-based Energy Standard Group S.A. announced that it will not bid for Ukrainian electricity distribution companies (oblenergos) under privatisation tenders (Chernihivoblenergo [PFTS: CHEON], Lvivoblenergo [PFTS: LVON], Odesaoblenergo [PFTS: ODEN], Poltavaoblenergo [PFTS: POON], Prykarpattyaoblenergo [PFTS: PREN] and Sumyoblenergo [not listed]). The company considers the current method of organising the tenders to be out of line with legislation, Ukrainian News reports
G&T verdict: We think Energy recalled its bids for the following reasons.
1. The risk of reprivatisation is high: according to Ukrainian legislation, off-shore entities are banned from bidding for energy sector companies under privatisation tenders.
2. The company plans to invest US$ 300mn in development of a luxury sector hotel complex in Yalta, Crimea; the volume of investment in construction of the complex is approximately 10% greater than the market capitalisation of CHEON, LVON, ODEN, POON and PREN combined.
Controlling 50-55%-stakes in CHEON, LVON, POON, PREN and Sumyoblenergo, Energy Standard may assume itself to be an exclusive bidder for the DistCos and presume that privatisation tenders are unlikely to take place without its participation. We think Energy Standard is likely to make an attempt to acquire control over the DistCos later, when more financially convenient.
Kostyantyn Yakunenko
56. Privatization of Odesa Portside Plant postponed again Concorde Capital May 20, 2008
The Cabinet of Ministers postponed the privatization of a 99.5% stake in Odesa Portside Plant for about a month, Alexander Turchinov, First Vice-President said yesterday. The privatization tender was scheduled for May 20 and was blocked by the President. In another story, Ukrainian News reported that the Cabinet, by its ruling as of May 16, took over from the State Property Fund the responsibility to manage state-owned stakes in Odesa Portside Plant, Turboatom (TATM: BUY) and Ukrtelekom (UTEL: HOLD), which all are on 2008 privatization list.
Vladimir Nesterenko: Political developments in the country point that Timoshenko is likely to resign by September-October this year, or even earlier. This means that the possibility that Odessa Portside is sold over the nearest months is minimal, the whole privatization process appear likely to be continued by the next government.
57. Tatneft files a law suit over Kremenchug Renaissance Capital May 22, 2008
Event: Interfax reported yesterday (21 May) that Tatneft has filed a law suit against the Ukrainian authorities demanding $1.1bn as a result of events surrounding the
businessneweurope.eu Kremenchug refinery. Kremenchug refinery was operated by Ukrtatnafta, an entity controlled by state-owned Naftogaz Ukrainy (61.4%), the Tatarstan Ministry of Property (28.8%), and Tatneft (8.6%). Last year, the Ukrainian court ruled that the 18.3% of Ukrtatnafta held by Tatneft's offshore affiliates be transferred to Naftogaz. In autumn 2007, armed gunmen arrived at Kremenchug refinery and displaced Ukrtatnafta's board chairman. As a result, Tatneft ceased crude supplies to the plant.
Action: We maintain our BUY rating on the stock.
Rationale: The suggested compensation for Tatneft ($1.1bn) implies that the company is demanding payment for the lost 18.3% stake in Ukrtatnafta as well as the 600,000 tonnes of crude supplied to the plant. We do not believe that Tatneft's chances of regaining the refinery stake are significant, given the Ukrainian authorities' strong lobbying power and the supreme court's earlier ruling in favour of Naftogaz.
58. Ukrainian prosecutors investigating prime minister's nominee for SPF head Renaissance Capital May 20, 2008
Ukrainian state prosecutors have opened a criminal investigation into the actions of the government's nominee to head the State Property Fund (SPF), Unian has reported, citing the presidential press service.
Portnov is still awaiting confirmation from the Rada to succeed the embattled Valentyna Semenyuk-Samsonenko. In expectation of this, he had appropriated the seals and stamps of the SPF, and taken control of the fund's bank accounts, denying Semenyuk-Samsonenko access to them. At the instigation of Prime Minister Yulia Tymoshenko, Portnov had tried to push ahead with the sales of both Odessa Portside Plant (OPZ) and blocking stakes in six regional electricity companies. However, the government subsequently backed down, leaving the sales until the situation regarding control over the SPF has been resolved. At the time of writing, the Rada has yet to schedule a vote on Semenyuk-Samsonenko's removal, or Portnov's appointment.
The move is the latest in a drawn-out battle for political supremacy in Ukraine between the president's office and the prime minister. In our view, it suggests the two are still locked in conflict and not yet ready to seek compromise.
Geoffrey Smith
59. UkrRos merges with UkrRos Grain company Dragon Capital May 20, 2008
UkrRos, one of the largest sugar producers in Ukraine, has announced a merger with the UkrRos Grain company, obtaining 30,000 ha of land and two elevators with total storage capacity of 130,000 tonnes.
UkrRos Grain is owned by UkrRos' major shareholders, Serhiy Fedorenko and his brother Alexander. The merger will enable UkrRos to increase its land bank to
businessneweurope.eu 100,000 ha by the end of 2008 and cut costs thanks to UkrRos Grain's storage capacities. The news is in line with our forecast for UkrRos and we maintain our recommendation and price target on the stock.
Tamara Levchenko
60. Ukrtelecom: Government moves to wrestle UTEL from SPF Renaissance Capital May 21, 2008
Event: The government has ordered that the Ukrainian state's 92.9% stake in fixed- line incumbent Ukrtelecom (and other assets scheduled for privatisation this year) be transferred from the State Property Fund (SPF) to the cabinet. SPF head, Valentyna Semenyuk-Samsonenko, has indicated that the SPF will study the legality of the transfer. Unian reported that presidential aide, Oleksandr Shlapak, called the move illegal and that President Viktor Yushchenko would take measures to stop it.
Action: We view the news as neutral for the stock and reiterate our HOLD rating.
Rationale: The government is clearly determined to keep preparations for the privatisation of UTEL on track despite the deadlock caused by the dispute between the president and Prime Minister Yulia Tymoshenko (see our report on Ukraine politics dated 13 May, Rivalry flares up in fight for SPF control). We retain the view that technical preparations are on track and, with the necessary political will, the auction of the stake could start as early as July this year. The government has approved the sale of a 67.79% stake in Ukrtelecom at a starting price of UAH12bn ($2.4bn), in line with current market and our valuations. We expect the revised budget for 2008 to target around UAH8-9bn in privatisation receipts. UTEL's sale would meet the prime minister's needs for funds without generating a surplus large enough to fund another increase in 'populist' social spending. Such an outcome could be acceptable to both Yushchenko and Tymoshenko - if they can resolve their current issues.
Tibor Bokor, Geoffrey Smith
OTHER DEALS 61. Probably the best lager in Turkey set to quit Nicholas Birch in Istanbul May 21, 2008
Worries about the secularist credentials of Turkey's mildly Islamist government were already running high when a new law on alcohol that could stop bars and restaurants from selling drinks by the glass came into force in May. And now citing high taxes, Danish brewer Carlsberg is pulling out of the Turkish market, which will add more fuel to claims that alcohol has a diminishing place in a country governed by former Islamists.
The Ankara representative of Tuborg Carlsberg, as the Turkish company is known, confirmed that Carslberg had signed a letter of intent to sell its 95.65% stake in Tuborg Carlsberg to CBC Group, its partner in Romania and Israel.
businessneweurope.eu 62. Latvia govt to meet with TeliaSonera today over Lattelecom deal bne May 21, 2008
The government's special task-force will meet with representatives from the Scandinavian telecommunications concern 'TeliaSonera' today to discuss the privatization of the Latvian telecommunications company 'Lattelecom', Latvian News Agency reported.
Participating in the meeting, scheduled for 15:00 in the Cabinet of Ministers' building, will be 'TeliaSonera' executives, the task force and Prime Minister Ivars Godmanis.
COMMENT: The Latvian government has finally decided to privatise the country's two main telecommunication companies in virtually the same way that it was considering almost two years ago. TeliaSonera will probably fall into line, though US private equity firm Blackstone Group is likely to be less enamoured with the deal terms.
On April 14, the cabinet agreed to a share swap with TeliaSonera in which the Nordic telecom firm would acquire the 51% of mobile operator LMT it does not already own in return for its 49 % stake in fixed-line operator Lattelecom and a payment expected to total LVL130m (€186m). This transaction would value LMT, the largest mobile operator, at around €1bn.
Afterwards, the government plans to sell the 49% stake in Lattelecom by the end of the year, with the remaining 51% being sold within three years. US private equity firm Blackstone Group, which bid LVL290m for Lattelecom last year, is expected to show interest again.
This was the same scheme that ran into the ground more than a year ago on government concerns over the legal and financial risks of taking Lattelecom back into full state ownership and then re-privatising it.
Frustrated by the deadlock over the deal, Nils Melngailis, the then chief executive of Lattelecom, then proposed a simultaneous privatisation of both telecoms, with himself leading a management buy-out of the fixed-line operator with Blackstone.
The government accepted the proposal and even signed a memorandum of understanding with TeliaSonera and the management last August before political infighting and public disquiet about the price doomed the deal. The transaction was eventually cancelled at the start of this year after Prime Minister Aigars Kalvitis was forced to resign.
Those risks of re-nationalisation are even greater now that the global economy is in such turmoil. The value of both LMT and particularly Lattelecom are now less than they were a year ago because of the fall in telecom multiples.
Moreover, it's not clear that TeliaSonera and Blackstone will now agree to this new- old scheme or the valuations on which it was based. TeliaSonera said after the government's decision that it was merely "the starting point for negotiations."
businessneweurope.eu On board
One sticking point could be the cabinet's refusal to force Lattelecom to divide its wholesale and retail operations. TeliaSonera, which has resisted functional separation in its home Swedish market, now says that Lattelecom must divide itself internally to ensure fair competition for other operators in the Latvian market.
Nevertheless, TeliaSonera is expected to finally agree to the cabinet offer because it will gain full control of LMT and will be able to develop it without state interference. Meanwhile, Lattelecom, its main rival, will be paralysed by state ownership and uncertainty over its future.
TeliaSonera already dominates the Baltic telecom market and had wanted to buy both telecoms but was blocked by the government on competition grounds. Once it has full ownership of LMT, it aims to improve services to large corporates, which will bring it into even more direct competition with Lattelecom's broadband services.
For Blackstone, the decision to separate the privatisation of LMT from that of Lattelecom is a blow, because it will now have to compete against other potential bidders for just 49% of the company.
After its initial agreement to buy the whole of Lattelecom was cancelled, Blackstone offered to buy 49% of the company for LVL142m, on the same valuation agreed for 100 % of the company in its bid last year. However, the government hoped to get even more for its stake and rejected the revised offer on the grounds that not permitting other bids could lead to legal challenges.
Blackstone is still very much interested in Lattelecom - which would be its largest deal in Central and Eastern Europe - and would start out as the favourite to buy the fixed-line operator because it's already done due diligence. However, if it were to be a minority shareholder, it would need a cast-iron shareholders' agreement with the government ensuring that it has a high degree of management control and the right to buy out the state within a specified period.
The unstable coalition government will struggle to grant such guarantees, particularly once the company becomes the plaything of both the telecom and economy ministries, which will each end up with around half the shares once it's renationalised. Given its past record and that few expect new premier Ivars Godmanis to survive much longer than another year, the likelihood of the government privatising Lattelecom this year must be put at slim at best.
63. Belarus aims to get $500m for BeST mobile operator bne May 26, 2008
Belarus is aiming to sell its stake in mobile operator BeST for at least $500m and sees Turkey's Turkcell as the most likely buyer, reported newswires last week, citing Belarus' Economy Minister Nikolai Zaichenko.
businessneweurope.eu "I think we are talking here about a sum no lower than half a billion (dollars)," said Zaichenko on the sidelines of the EBRD's annual meeting in Kyiv, reported newswires.
Regarding a timescale for the sale, Zaichenko reportedly said: "We are neither hurrying nor slowing down any deal. This is part of our plans. But I cannot give you a concrete date."
Belarus has already agreed to a deal to sell 80% in BeST to Turkcell, reported the newswire Prime-Tass, citing a source close to the government.
Belarus' president Lukashenko said in April 2007 that BeST could be sold to a foreign investor and that $500m and been offered, reported Prime-Tass.
64. Azeri, South Korean companies sign joint projects bne May 20, 2008
Several deals between Azeri and South Korean companies have been agreed during the visit of South Korean Prime Minister Han Seung-soo to Baku.
Azeri state oil company Socar signed a memorandum of understanding with Azerbaijan Investment Company (AIC) and Korea's STX to build a shipbuilding plant in the Garadag region of Azerbaijan.
Socar will have a 65% stake in the project, AIC will hold 10% and STX 25%.
Kolon Group has signed another memorandum of understanding with Asersun Holding Group and Azinko Holding on the W3 trillion (US$1=W1,043) Dream Island project -- a planned multi-purpose development with town houses, a hotel, an international school and Azerbaijan's first golf course to be located on the outskirts of Baku.
A branch of the Korean Trade and Investment Promoting Agency (KOTRA) was also launched in Baku on May 19.
At the opening ceremony, KOTRA's Vice-President Kyung San Min stressed the interest of Korean companies in participating in Azerbaijan's energy sector.
65. Completion of Roche deal major risk for Turkey's Eastpharma Raymond James May 23, 2008
_ The only true exposure to the high-growth Turkish Pharma production... After the sale of Eczacibasi Ilac's 75% to Zentiva, Eastpharma (and its main asset Deva Holding ) remained as the only true exposure to the high-potential Turkish Pharma production industry.
_ Deals with Roche will boost profits and earnings in 2008 and 2009... Eastpharma has signed a definitive "Asset Purchase Agreement" and "In-licensing and Supply
businessneweurope.eu Agreement" with Roche in March 2008, which will have a very positive effect on revenue growth and margin improvement in 2H2008 and onwards.
_ Restructuring is almost completed... The sales and marketing team has been reorganized, a new incentive system has been implemented. As a second part of restructuring, the construction activity (composed of Cerkezkoy's construction mostly) will be completed until the end of 2008, increasing total capacity from 100mn units to 350mn units per year.
_ Regional expansion and reshuffle in product spectrum... Eastpharma looks for ways to expand geographically to markets like Georgia, Russia, Azerbaijan and New Zealand. Additionally, the company targets to shift its therapeutic focus to higher margin segments until 2010.
_ Risks... The completion of Roche deal is the major risk. We assume the deal to be finalized in June 2008, and include it in our forecasts. Execution risk, regulatory risk, currency risk, acquisition risk and low liquidity are the other risks.
_ We initiate coverage on Eastpharma with a STRONG BUY rating... Our 12M target Mcap of US$778mn implies 98% upside potential.
66. Czech govt to sell Technoexport, Strojimport later this year bne May 22, 2008
Industry and Trade Minister Martin Riman told a news conference after a cabinet meeting that the Czech government approved the sale of Technoexport and Strojimport, engineering companies in which the state holds nearly 100% stakes. Names of the new owners could be known by the end of this year, he added.
67. EU sets June 25 deadline for probe into Spar buy of Tengelmann Hungarian plus bne May 23, 2008
The European Commission said the deadline for its inquiry into Austrian retailer Spar's proposed acquisition of Tengelmann's Hungarian Plus branches is set for June 25, newswires reported.
68. Georgia launches power privatisation Matthew Collin in Tbilisi May 19, 2008
The view across Tbilisi's picturesque old town after nightfall is dramatic, with hilltop churches and the Georgian capital's ancient stone fortress spectacularly illuminated by floodlights. It's easy to forget that at the start of the decade, this same landscape was regularly thrown into darkness by power cuts - a result of the institutional corruption and post-Soviet decay which was crippling the country's energy system.
Frequent power outages were among the factors behind widespread discontent that culminated in the Rose Revolution in 2003, when the pro-Western government of Mikheil Saakashvili was swept into office on a wave of popular protest. But after
businessneweurope.eu launching a crackdown on corruption and a transformation of the power sector, Saakashvili's government now faces another challenge - to keep the lights on. With GDP growth of 12.7% last year, Georgia needs to create new capacity to ensure that anticipated future demand is met.
Last year, Georgia became a net exporter of electricity, selling small amounts to neighbouring Turkey. In the future, it hopes to become a more significant exporter of energy - but without investment, this is unlikely to happen, and the country could again suffer power shortages. "According to the forecasted energy balances, power consumption will grow around 10% this year and 10% next year," says Archil Mamatelashvili, CEO of the company Caucasus Energy and Infrastructure in Tbilisi. "So within the next two years, if the economy grows at the same rate, Georgia will not have as much extra capacity as it has now. According to our estimates, by 2013- 2014, if Georgia doesn't have new capacities, there will be power deficiencies."
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69. Grontmij buys 75% stake in Hungarian engineering office Canor bne May 20, 2008
Netherlands-based Grontmij, Europe's third-biggest engineering office, has purchased a 75% stake in Hungarian peer Canor International, Grontmij announced on Monday, MTI reported.
Miklos Lukacs, managing director of Canor International, which will soon be renamed Grontmij Canor, said engineering staff at the company is expected to grow from 40 to 150 within two years as a result of the purchase.
Canor International has served as project manager for the construction of 30 Tesco supermarkets as well as plants for GE, Nokia and Bosch.
Grontmij has 130 offices all around Europe. Among its projects are the construction of a EUR 5bn high-speed rail line between Germany and France.
70. Hungary M&A activity doubles to $10bn in 2007 bne May 23, 2008
The value of mergers and acquisitions in Hungary more than doubled to $10bn in 2007, financial consultancy BDO Forte said on Thursday, MTI reported. BDO Forte tallied 168 transactions with an average value of $89m in 2007.
71. Investment fund RC2 Cyprus increases stake in Romania's Albalact to 17% IEBA Trust May 23, 2008
businessneweurope.eu On 19 May Raul and Petru Ciurtin sold a 4.05% stake in Albalact Alba Iulia worth RON 11.9 Mn (EUR 3.2 Mn) through two special trades. The approximately 26,5 Mn shares have been sold at an average price of RON 0.45. Following this trade, RC2 Cyprus increased its stake in Albalact to almost 17%. (Source: Bursa)
72. Lotos buys 10% stake in North Sea exploration field Wood & Co May 21, 2008
Lotos announced that it bought a 10% stake in the YME field (in the Norwegian sector of the North Sea) and an additional exploration area for USD 52.2 mil (PLN 115 mil). The price includes investment tax exemptions worth about 20% of the price. According to the operator of the field Talisman the YME field holds 68 mbbl and with potential output of some 40,000 bbl/day. Production from the YMW field is expected to start in the second half of 2009. NEUTRAL
73. Magyar Telekom still looking at Slovene incumbent bne May 22, 2008
Magyar Telekom's chief executive told Reuters in an interview that his firm is still interested in buying into Slovenia's national telecoms operator after a privatisation tender earlier this year failed due to insufficient bids Magyar Telekom, a unit of Deutsche Telekom , dropped out of the running for a 49.13% stake in Telekom Slovenije in January when its improved bid for Slovenia's second-biggest listed company fell short. Slovenia's government subsequently cancelled the sale in March, saying the remaining two bids for EUR400 per share were too low. Since the tender was called off, Telekom Slovenije has lost about 20% of its market capitalisation and the government has said it was unlikely to go on sale again before a parliamentary election in the autumn.
74. OMV to take legal action in Mol bid bne May 20, 2008
Austrian oil giant OMV is to take legal action in a Hungarian court against its Hungarian rival Mol in an effort to overturn MOL shareholder's decision to resist an OMV takeover, Austria Today reported.
OMV has been aggressively pursuing their Hungarian rival for months, buying up 20% of Mol's shares in an undisguised hostile bid, but was thwarted at Mol's general shareholder meeting last month. OMV wants the resolutions passed at the meeting to be overturned, as they say that the votes of many shareholders were invalid due to their ties with the company. OMV controls 20% of Mol's stock, but its voting rights are capped at 10 per cent.
The Austrian company said in a statement the votes at the AGM included some that should not have been permitted and it was taking the case to the commercial department of the Metropolitan Court of Budapest.
75. Polish developers Polnord and Pol-Aqua cancel merger deal bne
businessneweurope.eu May 21, 2008
One of the largest merger plans on the Warsaw Stock Exchange will not be completed after the construction company Pol-Aqua and property-developer Polnord yesterday cancelled the preliminary agreement under which Pol-Aqua was to buy 20 percent of the company controlled by Ryszard-Krauze's Prokom Investment, Polish News Bulletin reported. "This is the end. There will be no other agreement. The agreed price is out of the question. The presence of Prokom Investments in Pol-Aqua is also unacceptable - after the transaction Krauze would have 16.7 percent of the allied companies," said Pol-Aqua CEO Marek Stefanski, who holds 57 percent of the company. Analysts claim that Polnord is the main loser. "The merger would give Polnord its own construction base for development projects, while Pol-Aqua would have Polnord's ZL400m debt and would come back to the investor it has recently departed with," said Michal Sztabler, an analyst at DM PKO BP.
76. Polish steelmaker Konsorcjum Stali mulls share offering for acquisition bne May 21, 2008
Konsorcjum Stali steel company, which debuted on the WSE in December 2007, is considering holding another public offering worth up to ZL100m, in order to finance a planned acquisition, announced the firm's CEO Robert Wojdyna, Polish News Bulletin reported. "If we sign a letter of intent concerning at least one acquisition, we will make the final decision regarding the new issue," disclosed Wojdyna, who also said that the most likely date for that to happen is 2009. If the takeover pertains only to a steel construction maker, its value will not exceed ZL30m. However, if the targeted firm is a large steel distributor, it may fluctuate around ZL50-100m. Apart from the planned acquisitions, Konsorcjum is also carrying out organic development, setting up local distribution-and-production centres. It is also on the verge of completing a merger with Bodeko. Wojdyna forecasts that the firm's net profits in 2008, including Bodeko's results, will amount to at least ZL31m.
77. Polish Treasury gives green light to WSE privatisation bne May 23, 2008
At the extraordinary shareholders meeting of Warsaw Stock Exchange (WSE) operator GPW held on 22 May, the representatives of the Treasury, which controls 98.8 percent of the enterprise, entitled its head Ludwik Sobolewski to initiate all legal and formal steps necessary for its privatisation, Polish News Bulletin reported. According to the Treasury's plans, nearly 50 percent of GPW shares are to be sold, which means that after the operation, the bourse will remain in the hands of the state. Following the offering, the stock exchange will be listed on the WSE. The shares will be available both to individual investors and domestic financial institutions; however, in order to participate in the transaction, institutional investors will have to be invited by the Treasury. GPW is presently putting the finishing touches to its prospectus, which will be submitted to the Commission for Financial Supervision (KNF) in July. The IPO is to take place in October.
businessneweurope.eu 78. Polish treasury minister says privatisation of small firms can't wait bne May 21, 2008
In an interview with Rzeczpospolita, Treasury Minister Aleksander Grad, said that over the last six months, "we have prepared a four-year privatisation programme, initiated privatisation processes in 180 companies, concluded 40 agreements for the sale of small stakes held by the state in otherwise private firms, adopted new legal solutions and found suitable people for doing the job, I am quite satisfied with my achievements. So far, we have submitted three prospectuses of state-controlled enterprises to the Commission for Financial Supervision (KNF), with more on the way. It was agreed that by August and December prospectuses will be submitted by Enea energy group and PLL LOT national airline, respectively. Other companies queuing for the WSE are the stock market's operator GPW, Bogdanka mine and ZA Kedzierzyn chemical plant. The new regulations will ensure greater transparency and speed of privatisation processes, as well as lower costs. At the same time, we are not trying to beat the clock here, as our main priority is for the operation to be well prepared."
79. Polish tycoon Solorz-Zak's Polaris takes stake in insulin- maker Bioton bne May 21, 2008
Dutch-based Polaris Finance, an investment vehicle for Polish media mogul Zygmunt Solorz-Zak, bought a 10% stake in Polish biotech venture Bioton for an unrevealed price, the blue-chip company said in a statement, newswires reported.
Polaris bought over 6% in one of the world's few human insulin makers off the regulated market and 3.9% more on the bourse, Bioton said.
In a separate statement, the biotech venture informed that Prokom Investments, an investment vehicle for another local tycoon, Ryszard Krauze, sold 3.9% in Bioton, cutting its overall stake down to 33.3%.
Billionaire Krauze has been cashing in on some of his assets, as he focuses mainly on his oil investments in Kazakhstan and Russia.
80. Prague airport, CSA to be sold in second half of 2009 bne May 22, 2008
The Finance Ministry spokesman Ondrej Jakob told CTK that the government expects Prague airport's privatisation to finish in the second half of next year and the sale of Czech Airlines (CSA) by end-June 2009. Until now, the deadline to privatise both companies was the end of the first quarter of 2009.
The ministry is now searching in a tender for the main advisor for CSA sale. The winner will be known in August at the earliest, but a later date is more likely because
businessneweurope.eu of expected obstructions by unsuccessful bidders. Tender for an advisor in Prague airport sale has not been declared yet.
Czech Finance Minister Miroslaw Kalousek said on Monday that the state is now looking to get no less than EUR4bn for the Prague airport, which is garnering interest from a wide range of investors from Austria to India, newswires reported. "If we are going to get under 4bn Euros I will recommend that the government not sell the airport," said Kalousek
81. Turkmenistan and South Korea sign bilateral agreements bne May 19, 2008
Turkmenistan and South Korea have signed a series of bilateral agreements during South Korean Prime Minister Han Seung-soo's visit to Turkmenistan.
The governments of the two countries signed memorandums of understanding on transport, construction, textiles and energy policy research.
Han is on a ten-day visit to four Central Asian countries with the aim of improving South Korea's access to the region's oil, gas and mineral resources.
Turkmen President Gurbanguly Berdymukhamedov said that Turkmenistan would welcome gaining access to South Korean technologies as it develops its energy sector.
He invited Korean companies to participate in projects to develop Turkmenistan's Caspian hydrocarbon resources on the basis of Production Sharing Agreement, Turkmenistan.ru reported.
Also during Han's visit, Berdymukhamedov signed an agreement to buy Hyundai city buses.
82. Turkmenistan invites South Korea to invest in Caspian oil projects bne May 21, 2008
Turkmen President Gurbanguly Berdymukhamedov has offered to let South Korean companies jointly develop three of Turkmenistan's offshore Caspian oilfields.
Speaking to journalists after his visit to Turkmenistan, South Korean Prime Minister Han Seung-Soo said Turkmenistan was also willing to let South Korean companies participate in onshore exploration projects.
South Korea is due to send a fact finding team to Turkmenistan in the near future.
83. TVN's acquisition of 'n' is a good example of bad corporate governance Wood & Co May 21, 2008
businessneweurope.eu TVN's purchase of 25% of digital satellite TV platform 'n' for EUR 95 mil really makes TVN look bad:-
1) The price being put on the business (EUR 380 mil, perhaps plus debt) is really high when you consider that 'n' is a latecomer to the digital satellite game with only 320,000 subscribers (Cyfrowy Polsat: > 2 mil; Cyfra Plus: > 1 mil) and is still a loss- making business (operating loss EUR 49 mil in 07; EUR 10 mil EBITDA loss in 1Q08 - source: press). 2) Why didn't TVN own this asset from the beginning two years ago if it makes sense for it to own it now? To miss out on the first two years means, we estimate, that it will end up paying minimum an extra EUR 100 mil or so for 100% of the asset if it exercises its option to go to full control in the long run. EUR 100 mil is 22% of TVN shareholders equity as at 31/3/08 (using today's exchange rate). In other words, we postulate that TVN has just flushed the equivalent of 22% of its current shareholders equity down the toilet. 3) Why would any sane company do this? Of course TVN is sane and smart. The problem, rather, is that its majority-owning parent, ITI Group, is riding roughshod over minority investors in its main publicly-listed vehicle, TVN. 4) Is there a strategic argument for content-company TVN to own delivery platform 'n'? There might be a good argument that TVN needs to hedge its bets ahead of overall market digitalisation, in case the latter turns out to be overly liberal and/or hard on incumbents. So having 'n' means having a controlled distribution platform and not being beholden to others. This is fine, but didn't TVN have that benefit already, because its parent had it? NEGATIVE
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