A new round of Russian consolidation

A new round of Russian consolidation
12 November 2021

The RUB161m acquisition of Eurocement's assets by the Mikhailovsky Combine of Building Materials (Smikom group) in June 2021 has sent the Russian cement market into a new consolidation phase. Russian billionaire Lev Kvetnoy, who owns OOO Gazmetallproekt, the second-biggest Russian cement player, is now closing in on the acquisition of two former Inteko plants.

The Trust Bank put the two cement plants up for open auction on 18 October 2021. Applications will be accepted up to 8 December and the auction is scheduled for 13 December 2021. Lev Kvetnoy has used another of his assets, Aktualnye Investments JSC, which manages the flagship Novoroscement AO plant, to submit a petition to the Russian antitrust regulator, the Federal Antimonopoly Service, to acquire ZAO Uglegorsk-Cement and OOO Atakaycement.

Atakaycement is located near Novorossiysk, Krasnodar territory. The initial sale price for the plant is RUB4.3bn, while the total amount of the company's debt is over RUB4.5bn. Meanwhile, ZAO Uglegorsk-Cement is the only cement producer in the Rostov region. The value of rights of claims is RUB241.75m and the total amount of the debt is more than RUB3.5bn.

Aktualniye Investments also intends to acquire two enterprises for the extraction of stone, sand and clay in the Rostov region, Zhirnovskoe Gornoe Upravleniye and Klyuchevskoe Gornoe Upravleniye, the latter of which has debts of approximately RUB147.8m.

This would not be the first purchase of Inteko's cement assets by Lev Kvetnoy, a business worth US$1bn, according to Forbes Russia. Currently, Lev Kvetnoy also controls the Verkhnebakansky cement plant, which was acquired for an estimated US$300m in 2011 from Elena Baturina, formerly Russia’s richest woman and the founder of Inteko group.

The fate of the former Inteko group
In 2011 Inteko group was transferred to local businessman Mikail Shishkhanov, the then owner of the Russian B&N Bank. After the bankruptcy of the B&N Bank, the majority of Shishkhanov's business was transferred to Trust Bank, including Uglegorsk-Cement and Atakaycement.

Commenting on the forthcoming tender an official spokesman of Trust Bank said that the Bank plans to withdraw from cement business in 2021, as there is an optimal market situation for the sale of cement assets. "Given the constant high demand for building materials in general and for cement in particular, the production and sale of cement can be considered a promising direction, especially under the management of a major industry player," he added.

Further Russian market consolidation can be expected
Market analyst CMPRO has estimated Gazmetallproekt's domestic market share is approximately 10.1 per cent, which would grow to 11 per cent on the acquisition of the two Inteko plants. This would still leave Gazmetallproekt a long way behind market leader Smikon.

Mikhailovsky KSM, part of the Smikom group, associated with Oleg Deripaska's relative Pavel Ezubov, acquired the assets of Eurocement from Sberbank in the summer. Smikom has the largest market share in Russia of around 31 per cent. The top two producers would own 42 per cent of the market if Gazmetallproekt is successful in its bid to acquire Uglegorsk-Cement and Atakaycement. However, Russia's cement market will remain deeply fragmented with excess cement capacity and plant modernisation a pressing priority.

Current domestic market expands
Between January-August 2021, cement production in Russia increased by 5.1 per cent YoY to 39.3Mt, according to CMPRO. The market grew by 12.1 per cent in value to RUB207.8bn. Due to the market surplus, cement prices increased by only eight per cent. Meanwhile, prices for building materials in general rose by 27.67 per cent compared to January, states the Russian state federal statistics service, Rosstat. 

Going forward, Russia's dynamic housing construction sector, which is expected by local analysts to reach a record 90Mm2 in 2022, should lead to an increase in cement consumption. The Global Cement Report 14th Edition states that Russian cement consumption could reach 57.7Mt in 2022 as it recovers from the pandemic.

Published under Cement News