Page 66 - bne_Magazine_February_2019

66 I Eastern Europe bne February 2019
privately owned gas company and LNG pioneer Novatek, neither Mikhelson, nor his companies, have been placed on any sanctions list.
Tycoon Gennady Timchenko, however, is said to be one of Russian President Vladimir Putin’s closet confidants and was one of the first names to be included in the sanctions lists in 2014. He owns 17% of Sibur.
And finally there is Kirill Shamalov who owns 3.9% and is on Sibur’s board. Shamalov caused a storm of comment when it was reported that he had mar- ried Putin’s daughter, only to be later reported divorced again.
Konov said the sanctions on the minority shareholders were a major inconve- nience and caused the company a lot of extra work as their partners and clients did their due diligence. The company even postponed a bond issue in 2014 when the sanctions were imposed. However, the sanctions regime has not affected the company’s operations nor has it cost them a premium in their
cost of borrowing, says Konov.
“We had to come to the banks and cli- ents and make another effort to explain our shareholder structure and that the sanctioned shareholders are well below 50% of the total shareholder structure of Sibur, which means the company is not affected by them being a shareholder,” explains Konov.
As for Shamalov, he has been work-
ing at the company for over a decade, first running the government relations department, as he came to Sibur from the government, and later expanding his role to cover the legal and investor relations department. Konov quips that he has no idea if Shamalov was married to Putin’s daughter but says he was not invited to any weddings.
Where next?
Exports are key to Sibur, and they have also insulated the company against some of the wilder swings of the Russian economy in recent years. With some 60% of its production going to exports and earning hard currency it has a natural hedge against the volatility of the ruble. The make-up of the Russian economy creates an automatic failsafe: if the price of oil falls and the ruble follows it down, that only lowers Sibur’s cost of production and increases its profits from exports. For example, revenues have grown from RUB79bn in 2013, when the oil price was $109 per barrel, to more than double that level, RUB195bn, in its 2018 forecast, while oil prices fell to $40 in 2017 but have since recovered to some $65-$75.
The effect of these swings is of course visible in Sibur’s Ebitda, but the com- pany has been turning in a steady circa $2.5bn of earnings a year. Sibur's IFRS revenues were up by 21.6% to RUB258bn in the first half of 2018 due to support from prices and the continuous effect of commissioning new capacities, and they
clearly will rise again even more strongly as ZapSib comes online.
The domestic Russian market is also one of Sibur’s more interesting ones, accounting for 58% of revenues in 2017. After that comes Europe, but Asia is also growing in importance.
The Chinese state-owned energy com- pany Sinopec and the Chinese Silk Road Fund bought 10% each in the Russian company in 2015 and 2016 respectively. Konov says the sale to Sinopec was proportionally split between the existing shareholders and the company already has several joint ventures with the Chinese – the main one being a synthetic rubber plant in Krasnoyarsk.
“In the Krasnoyarsk rubber plant we are responsible for production and they are responsible for marketing,” says Konov, adding that Sibur is the majority share- holder and handles the technology and production, while their Chinese partners handle the sales and marketing in Asia.
Sibur has a rubber joint venture in India, which is the opposite in that there Sibur is the minority partner, but again it handles the technology and production with its Indian partners doing the sales and marketing.
As for its own synthetic rubber produc- tion, Sibur exports most of its output to Europe where it has most of the major car tyre producers as customers. While Europe and the former Soviet Union remain the company’s key markets the future is in Asia and the other emerging markets.
“The European market is not growing so it is not difficult to outpace the Europe- an market. The Russian market has been growing fast in the last decade because it started from under consumption.
We have seen a lot of changes in the consumer behaviour in the patterns of how the big retail chains changed their network – from open air markets to retail supermarkets. That has led to significant growth in polymer consumption,” says Konov. “But the Asian markets are grow- ing and continue to grow faster than the average global growth rates.”
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