'Ammonia like a spaceship — it cannot go bankrupt': Tatarstan against bailout

New contender for Ammonia

The negotiations on the sale of the modern gas chemical complex Ammonia JSC, built under the loan of $1,4 billion from Vnesheconombank, is heading into the homestretch. As Kommersant reported, 2 contenders out of 10 applicants have left — Russia's largest fertilizer producer EuroChem of Andrey Melnichenko and the Russian oil company Lukoil, which occupies leading positions in terms of oil and gas production in the country.

Let us note that EuroChem was the first to declare interest in buying Ammonia, Lukoil joined the negotiations later. Both candidates expressed their willingness to pay $1 billion for the purchase of the Tatarstan producer of mineral fertilizers. ''Kommersant explained Lukoil's interest by that 'the oil company does not have capacities for the production of fertilizers, but a year ago they talked about plans to build a gas chemical complex at the Stavrolen site in Budennovsk, where the gas of the Northern Caspian is processed, with a capacity of 2 million tonnes of urea and ammonia a year.'' In other words, the advantage of Lukoil is its own gas, which is the raw material for the production of urea and ammonia, which EuroChem does not have. In addition, Lukoil has long-standing partnerships with Tatarstan, so its likely entrance is perceived much more loyal than the deal with EuroChem. However, it is unknown how much it will cost to transport raw materials to Mendeleevsk and configure it for Ammonia.

Due to differences with the new leadership of VEB, Khanbikov was forced to leave the post of chairman of the board of directors of Tatammonia PLC, and the whole team left together with him. Photo: Maksim Platonov

5% instead of 9%: why Khanbikov couldn't persuade VEB

It should be reminded that the Tatarstan producer of mineral fertilizers Ammonia was built on the initiative of its founder — 'gasman' Rinat Khanbikov. He owns a 46,5% stake in Tatammonia PLC, the rest is in the hands of the government of Tatarstan through the Investment and Venture Fund of the Republic of Tatarstan and other minority shareholders. The gas chemical complex was put into operation at the end of 2016, but due to differences with the new management of VEB, Khanbikov was forced to leave the post of the chairman of the board of directors of Tatammonia PLC, and the whole team left together with him. He failed to agree with the former head of VEB Sergey Gorkov on a reduction in the interest rate from 9% to 5% under the foreign currency loan of $1,4 billion.

By coincidence, after the resignation of Khanbikov from Ammonia, Sergey Gorkov also left VEB: in April he was appointed as the head of Rosgeology. Rinat Khanbikov in an interview with our publication said that Ammonia was a very profitable enterprise, its EBITDA was 50%, and it was possible to bring it to 75%. ''But this was prevented by differences in views on development with our main creditor, Vnesheconombank. No, they didn't demand any early repayment of the loan as you suggest. My vision was the following — to reduce the interest rate under the loan of 1,4 billion dollars (this amount of the selected loan for construction – editor's note) by 3-4 percentage points on average — to the level of 5% per annum, so that the plant could 'breathe' a little. But now the plant, as before, serves the foreign currency loan from VEB at 9% per annum. No matter how we work, even with such a brilliant indicator of the internal profitability of EBITDA, Ammonia will always owe the bank,'' he argued.

Lukoil asks for additional issue

It seems that there turned up an equivalent negotiator with VEB. Sources close to the government of the Republic of Tatarstan confirmed the fact of negotiations with Lukoil, but noted that they are still conducted with six or seven industrial investors. Among them there are EuroChem, Singapore's Indorama, as well as Lukoil. ''The negotiations with them are like bidding — who will give the best conditions,'' says a person familiar with their course. According to one of the sources: ''It will take another two months because with each of the six applicants, who have named their price, meetings will be held. They should look at and study Ammonia, and it will take two months.'' Gazprombank was chosen as the agent to attract a buyer.

The most likely scheme for the sale of Ammonia — through an additional issue of $1 billion in favour of the future purchaser, not through the bankruptcy of the gas giant. Photo: Maksim Platonov

But most importantly, the most likely scheme for the sale of Ammonia — through an additional issue of $1 billion in favour of the future purchaser, and not through the bankruptcy of the gas giant, said sources close to the beneficiaries of the plant. ''Ammonia is like a spaceship that can't go bankrupt like a candy factory. This enterprise is of the first class of danger according to the classification of industry security, so the complete control will not be given over to the bankruptcy trustee,'' the representative of one of the minority shareholders of the Republic of Tatarstan believes. We failed to contact Rinat Khanbikov: he is being on a business trip abroad.

The ministry of industry and trade refrains from comments on the specifics of the negotiations. ''As a result of the Ammonia project implementation, more than 1,200 jobs have been created. It is planned that revenue in 2019 will be 19,2 billion rubles, which is by 5 per cent higher than in 2018. The Republic of Tatarstan is interested in stable operation and development of Ammonia plant. To this end, the leadership of the republic is constantly engaged in the process of interaction with leading Russian and world industrial partners. All negotiations are commercial in nature, so they can be commented upon after a public announcement of their practical results.''