By John Helmer, Moscow
Sergei Generalov, controlling shareholder of Far Eastern Shipping Company (Fesco), lifted the lid yesterday off an intensifying contest among Russia’s transport moguls to redivide the state’s rail, box terminal and shipping concessions to be awarded before the presidential election in a year’s time by Deputy Prime Minister Igor Sechin.
International maritime industry sources believe that apart from tanker shipping, which remains in global market doldrums, the publicly listed Russian transport companies may be keenly pursued because at current asset valuations, their shares are priced well below their potential market value. But Generalov, who survived his business ties to Mikhail Khodorkovsky to become a protégé of the federal Transport Ministry under Sergei Frank, admits he is now struggling to win the Kremlin support required to become the new national champion of the container sector of the transport business.
In an interview published in Vedomosti, a Moscow business daily, Generalov acknowledged that after selling off several lines of his fleet and port terminal business during the crisis, “the most important thing is that [Industrial Investors, his personal holding] has survived.” His new strategy, Generalov said, is to consolidate what is left of Fesco’s business with rail operator Transgarant and a takeover of the rail box transporter, Transcontainer, “into a single inter-modal operator”. Interviews in the Moscow business papers as capacious as this one usually signal that the interviewee is having difficulty getting a sympathetic hearing on the private side of the Kremlin wall.
Generalov now admits he was rebuffed by the Kremlin when he tried to buy all of the Transcontainer shares offered by the state railways company last year in a first-stage privatization of 35% of the company: “At that time the government has already made a decision to IPO the company — in the end we took part in it, bought a few of the shares [as were assigned to us].”
Market demand for Transcontainer proved to be weak, and a state directed bank and pension fund took 14%; Generalov was restricted to 12.5%. Since the November 2010 listing, there has been little share trading, but the price is up by about 10%. “Our plan,” said Generalov, “is to get control of Transcontainer.”
But he implies he is facing opposition from government officials and business rivals he doesn’t name. They include Sechin who controls shipbuilding and ports, as well as oil and bulk cargo movement; Vladimir Yakunin, who controls Russian Railways; Nikolai Tokarev, chief executive of Transneft, who has now taken control of Novorossiysk and Primorsk ports; Vladimir Lisin, the steel oligarch who is planning to send to IPO his collection of port, stevedore and river-fleet companies; Gennady Timchenko, who controls a large share of the oil trade, as well as rail transportation for oil and port terminals; and the Ministry of Transport, headed by Igor Levitin.
“[They] know about [his plan],” Generalov said, “in the Railways, the ministries of Transport and Economic Development.” Conceding that he faces unnamed rivals for control of Transcontainer, Generalov added with an uncharacteristic note of nervousness: ” We do not interfere in the decision-making process – when, how and under what conditions.”
Generalov also hinted that he’s ready for a re-run of the bidding match for Fesco five years ago, when he was denied a discount price deal with the Transport Ministry, and was forced by officials to pay a much higher premium for Fesco than he wanted to concede. One of his rivals in the Fesco history was the Alfa Bank group, led by Mikhail Fridman. The fight still rankles, although an Alfa source believes Generalov miscalculated asset value and subsequently managed his debts so badly that he has been forced to sell assets and find a new business model, as well as new political patronage. The latter is costlier now. “Price is determined by the market,” Generalov told Vedomosti. “Obviously, if control [of Transcontainer] will be sold, the seller is entitled to the award, and we are willing to pay.”
The current market capitalisation of the thinly traded Transcontainer shares is $1.4 billion. According to Generalov, “at current market quotations, [a takeover stake] costs about $700-750 million, which can be supplemented by a premium for control. If there is an auction, this [premium] will have the impact, plus the factor of competition.”
Hinting at his apprehension that the Kremlin may have a rival in mind for Transcontainer to be awarded control without an open contest, Generalov said: “I think that without competition [the sale of Transcontainer] will not do. In 2006 we bought from the government the state-owned stake Fesco. Then, because of price competition that has increased significantly, and we fought until the end. In the case of Transcontainer [that] will be exactly the same way. Hardly anyone else is able to build a similar strategy as ours, it is in the container industry – with a maximum advantage of its geostrategic position of Russia and developed network of railways. And we may be willing to pay more because we can better understand why we need this asset and how we will develop it further.”
If he loses, if the selection of the national consolidator of container and rail transportation is someone else, Generalov said he’s not thinking of selling Transgarant. “It’s definitely not a reason for sale. Where there are three or four [rail container operators] out there, or five or six, nobody can say exactly how many of them there will be to end up. We continue to invest in Transgarant. And if you will take a real escalation, we will participate in it through the purchase of other operators, as well as through mergers with other players, both for money and for shares. We are conducting a series of different negotiations on this subject.”
Generalov also acknowledged that he’s unhappy with the way he was treated in 2008-2009, when he took his near-billion dollar debt load to the state banks and asked for repayment guarantees and other loan assistance. “”We tried to use the system of guarantees. We received these guarantees at all levels, which were, as I recall, at least four approved. But it was impossible to get them. Physically impossible. Constantly arising there were [demands for] y more clarifications, corrections, additions, conditions…To satisfy them all was unreal. Everyone saw that the whole program of the state was constructed in such a way that really only those who really wanted the state to provide help [got it]…When the program of state guarantees was announced, this tool had already been in demand in business. When we got to the end of the road, the guarantees were already useless. We were in the list of strategic companies in December 2008. Permission to receive state guarantees was received in December 2009. In January 2010, [we] decided that we will not use them.”
Another interpretation of the evidence of Generalov’s difficulty with the state bank guarantee requirements was that he was afraid of providing his shares as collateral, in case his rivals found a way of taking them from him.
That, Generalov now hints openly, reflects corruption. “Generally, the bureaucracy and its concomitant corruption, is the biggest problem of any industry. But Fesco, he says, is as clean as a whistle. “From ancient times to the [present] Fesco has a provision about business ethics. We have tried to follow it. And whoever does not fit into the principles that are promulgated in the company, and by the shareholders and the president, they don’t work in the company.”