Sovcomflot IPO will 'happen when it happens', says Kolesnikov

Lloyds' List

Preparations ongoing behind scenes but no firm sell-off date, says Russian tanker giant's finance chief.

PREPARATORY steps towards the privatisation of Sovcomflot —  a move first discussed as long ago as 2004 —  have been under way behind the scenes, although there is still no target date for a sell-off, according to the chief financial officer of Russia’s state-owned tanker giant.

Meanwhile, the company is not experiencing any major financial impact from Western sanctions imposed on the Kremlin as a result of the Ukraine crisis, and is still able to raise money from Western banks, Nikolay Kolesnikov confirmed.

Tanker IPOs have been much in the news so far in 2015, with Euronav undergoing a successful New York listing, while Greek owner George Economou flirted with the idea of spinning off DryShips’ tanker interests before shelving the idea and buying the ships himself.

Mr Kolesnikov said that Sovcomflot — currently a stock company with 100% of the shares owned by the Russian state — seriously does want to go public, even though the on-off announcements for more than a decade now have left many observers slightly bemused.

It is also clearly the case that the Lehman Brothers crash of 2008 and the subsequent shipping downturn have muddied the waters, especially from the standpoint of an organisation as conservative as the Russian government.

In a rare interview with the Western media, Mr Kolesnikov commented: “It was very hard for us to recommend to the government, our shareholder, that they should be trying to privatise and cash out at the bottom of the market, given the cyclicality in the tanker industry.

“They had to put their plans on hold, or rather, we had to put our hands up, so they wouldn’t rush ahead and do something they would regret in the future.”

However, recent improvements in the tanker market have not gone unnoticed, and Mr Kolesnikov describes sentiment as very different from even one year ago.

That other tanker concerns have positioned themselves to tap the capital markets has also registered on the Kremlin’s radar screen.

“For the government, nothing has changed. Sovcomflot is high on their list of privatisation candidates, but this is all as before subject to market conditions.

“In the meantime we have been doing all the preparatory work to be ready to go when the conditions are right.”

Recent developments include the registration of a new share issue with the local stock market regulator and with the central bank, he went on.

Lloyd’s List asked whether the situation could be summarised as ‘it’ll happen when it happens’. He replied: “I think that is a good way to put it.”

Perhaps the number one motivation is the desire to tap equity capital, although Mr Kolesnikov was at pains to stress that SCF has no current difficulty finding the funds to pay for its expansion plans.

Institutionally speaking, the company is governed no differently from a public company and most importantly, counterparties have never had an issue about what the ultimate ownership of Sovcomflot is, or what its national origins are, he insisted.

For example, an ING-led consortium of leading European banks was perfectly happy to sign off on a $319m 10-year limited recourse credit facility last December. The money went on a brace of ice-class LNG carrier newbuildings. There is also an unsecured bond issue, dating back to October 2010.

In private conversation, shipping bankers with SCF exposure freely admit that although aware of potential adverse publicity from working with a state-owned Russian concern, they are more than happy with the credit risk and regard it as a top-drawer client. Deals are, of course, subject to country limits and client limits, but that’s about it.

Sovcomflot is not subject to any sanctions, so it’s business as usual for us. Obviously we are a big player in the industry and as such we are a major client for all the banks that do ship finance, historically and currently.

“We have relationships with most major banks that do shipping, with most export credit agencies depending on where we build our vessels, so we tap that pocket of money,” Mr Kolesnikov said.

But being in a competitive business environment, SCF needs to be competitive with regards to the cost of its capital, and that is where an IPO could come in handy, although the company will proceed with caution.

“If we were to tap equity, we need to make sure we do not compromise ourselves on the cost of that equity. It would be very difficult for us to pass on additional costs to our clients,” he commented.

An IPO is seen as preferable to private placement, as equity will provide a performance benchmark.

Oil majors typically do not wish to take equity positions in tanker operators, while private equity is largely interested in bottom fishing and should not regard SCF as an easy mark, Mr Kolesnikov maintains.

“We need to have some visible tools to measure our performance and what can be better than a stock price?

“Listing venue is a technicality, I wouldn’t want to comment on it. We will be guided by the bankers as to where it is most appropriate for us to list.

“At the end of the day, people will be looking at the fundamental value and the outlook for the business as such. Then we can package it appropriately.”