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is in the middle of nowhere and getting its products to its customers is a major logistical exercise.
The problem with the LPGs is they are largely sold in Europe and have to be transported in special compressed tanks mounted on trains. Not only are the gases expensive to transport, the tanks come home empty.
One of the big advantages of olefins and polyolefin is they are granules that are simple to transport. Moreover as polyole- fins sell for twice the price per tonne that LPGs do the transport costs are propor- tionally lower. On top of this, the trucks and trains carrying the polyolefins can bring other goods back, earning some extra money on their return trip, which will bring logistical costs down further.
“In order to sell LPGs we have to ship
it to our consumers in Rotterdam. It is still a 40% margin. We have a lot of this LPG to sell. When we started this ZabSib plant we took roughly half the gas and sold it not to the lighter producer in Rot- terdam, but to our own petrochemical plant in Tobolsk,” says Konov.
Climbing the ladder
Winter is closing in Tobolsk with a light snow already covering the ground. Temperatures were still only minus 4°C on the day bne IntelliNews visited the ZapSib site but the project's contractors (including Turkey’s Renaissance and Japan’s Yamata) have been building many of the parts of the plant else- where and shipping them to the site via the grand rivers that run through Rus- sia’s heartland. Because of the extreme cold Tobolsk is only accessible by river for one month a year when all the really big elements of the plant arrived.
Over 20,000 workers are building the final stage, but this will drop to around 1,700 operators once the constriction is complete. A bevvy of faces trudge through the snow and mud: Chinese, Indian, Turk, Russian and others, with large “safety first” signs hanging off the installations overhead in three languages. The Chinese firm Sinopec along with Silk Road Fund bought a 10% stake each in Sibur in 2016 and
Chinese contractors are also involved in the construction.
Sibur has already earned a reputation for pulling off these large-scale construc- tions in extreme climates on time and under budget.
In general Russia has moved up a gear. In the 1990s the game was simply to pull minerals out of the ground any way you could and get the cash. But a decade and half later owners are hiring professional managers and investing in their facilities for the long-term. Konov is a shareholder in Sibur, but only a minority one. Most of the management team have been with the company for more than a decade and the company prides itself on bringing 85% of its investment projects in on time and under budget.
ZapSib is the company’s last big invest- ment project for the meantime, with some $6.5bn already invested of the total $9bn planned as capex. Sibur's YTD capital expenditure was up by 31% to
has never officially announced a firm intention to IPO, although it has not hidden the fact that it has discussed
one with investment banks. The main shareholder, Leonid Mikhelson who also owns and runs the independent gas company Novatek, has said ever since he became the majority shareholder
in Sibur in 2010 that he believed Sibur “should be a public company.”
“It’s a fantastic thing how this story developed. We never delayed [the IPO], as we never announced it,” says Konov. “We started to discuss with the banks. We have our shareholder that strongly believes we should be public one day.
As the end of the ZapSib investment comes into sight we started to discuss
if it makes sense to make an IPO. Once we started these discussions we were immediately accused of targeting an IPO in 2018. Then it didn't happen so people started to say we were delaying the IPO.”
Sibur has been growing so fast in the last five years that it made no sense to IPO. With access to the bond markets
“Over 20,000 workers are building the final stage, but this will drop to around 1,700 operators once the constriction is complete”
RUB153bn in the third quarter of this year, with YTD total debt up by 3.4% to RUB322bn and net debt to Ebitda lever- age at 1.6x as of 30 September 2018, but that ends next year.
With capex winding down, the com- pany should be throwing off a lot more cash. Konov estimates that the company is already generating around $3bn of Ebitda, which will cover the last phase of investments into ZapSib and also clears the way for a possible IPO.
Talk of a Sibur IPO has been swirling on the market for several years and resur- faced again this summer when analysts started talking about an autumn list- ing. When it didn't appear, the market started speculating about the reason for the “delay”. Konov says the company
– Sibur issued a $500mn Eurobond in September 2017 – the company is not short of funds. The company’s debt level is also low, with a debt/Ebitda ratio of a modest 1.7x from about $5bn in total debt load, most of which is associated with ZapSib.
“Now that ZapSib is reaching completion it's the right time to start discussing it again,” says Konov. "But the final deci- sion is up to the shareholders and will be subject to market conditions."
Insiders
One potential headache with the IPO is Sibur’s well-connected sharehold- ers. Three names stand out. Mikhelson came into the company in 2010 and owns 48.5% of the stock. The major- ity shareholder of Russia's leading
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