MOSCOW, Jan. 9, 2014 /PRNewswire/ -- Russian government-owned high-tech and defense manufacturing conglomerate Rostec is exiting a collaborative arrangement with Siberian Cement Holding Company (SibCem). It would appear that the plan towards building a regional cement superpower in Siberia has run its course, according to the report by Russian Business News Network (RBNN).
Back in 2010, SibCem Chairman Oleg Sharykin proposed creating a cement mega producer in Siberia. According to Sharykin, his rationale was "to counter the Chinese expansion" into the region. An additional secondary goal was "cartelizing" the cement market to prevent sharp price fluctuations. Sharykin's proposal was fairly typical of 2010, when industrials, still reeling after the credit crunch of 2008, tended to seek larger scale to ensure survival in a difficult time.
Government-owned Rostec assisted SibCem in building its cement group. The partners started building the cement giant in 2010 using the Russian Cement Company LLC as a platform for consolidation. The Russian Cement Company went on to acquire a 50.52% equity stake in Angarsk Cement. This way, the Russian government became a joint owner, together with SibCem, or more than 98% in Angarsk Cement, giving the government representation on the company's board of directors. After RosTec became a shareholder, Russian Cement Company no longer had any problem with taking out a RUB 1.7 bln loan from VTB Capital (it was later refinanced by Sberbank).
Russian Cement Company established a 100% subsidiary in September 2011, the Russian Nephrite Company (one popular type of nephrite is commonly known as jade). However, the Russian Cement Company has since exited the Russian Nephrite Company, most likely because of termination of its collaboration with Rostec.
Market analysis by RBNN Analytical Center suggests that the entire three years of this partnership between SibCem and Rostec yielded no significant results, and by the fall of 2013 the writing was on the wall, as Rostec representatives resigned from the Angarsk Cement board, and the Russian Cement Company divested its stake in the Russian Nephrite Company.
A source within Rostec has indicated that the government high-tech conglomerate is retaining a stake in the Russian Cement Company on personal request from Oleg Sharykin, who, despite antitrust objections from FAS, the Russian Federal Antimonopoly Service, has made a deal to buy a controlling stake in Iskitimcement in 2013, suggesting that SibCem is still interested in increasing its influence in the region.
Sources at Siberian Cement confirm this information, adding that Rostec is expected to divest its shareholding in the Russian Cement Company completely only in 2014, and that the sale is to be channelled through companies controlled by Oleg Sharykin and domiciled in offshore jurisdictions. We note that Sibcem is going to need to raise finance to close the deal, and chances of raising additional capital are higher on the strength of its partnership with a major government-owned corporation.
However, the trend towards greater scale for industrial groups which was prevailing in 2010, is now changing: entrepreneurs and company owners are moving away from cartel arrangements and establishing regional "champions," giant companies capable of cornering the regional market, towards vertical development to increase their customer base, and receive project finance. This new trend is likely to continue into the future: even smaller Russian companies now have access to outside finance, and it increasingly makes sense for them to stay relatively small, nimble and independent, while keeping their margins high and costs low.
Russian Business News Network
(646) 755 9608
SOURCE Russian Business News Network