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Nizhny Novgorod’s most notable 2009 newsmakers |
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Oleg Kouzbit, Online News Managing Editor
The Nizhny Novgorod region has traditionally been an industrial powerhouse, famed for its chemicals, cars, tankers, jets and oil refining and for Russia’s fourth largest city, Nizhny Novgorod. Over the past decade it has attracted a growing portfolio of international investment, especially in its smaller cities of Dzerzhinsk, Bor and Kstovo. In this feature Marchmont takes a brief look at the region’s most important newsmakers in 2009.
GAZ runs out of gas
When Nizhny’s auto giant, GAZ Group, controlled by Oleg Deripaska, began the year it was comprised of the Gorky Automotive Works, 18 other automotive entities throughout Russia, vendors and service companies, as well as the U.K.’s LDV.
Things looked fine in January when the Group successfully floated a $600m five-year bond issue to raise funds to start an array of expansion projects—the centerpiece of which was the first new domestic sedan to be produced in Russia in more than 30 years, the Volga Siber.
What a difference a few months make... By April GAZ was in deep trouble. Like other auto majors, its 100,000 strong workforce was facing huge layoffs as the bottom dropped out of domestic auto market.
As a long-time Kremlin favorite, GAZ was more fortunate than others. It got the help it needed with a pledge of $900m in government orders—neatly arranged by Governor Valery Shantsev, who was hand-picked by Vladimir Putin when he was president to run the show here.
But the relief was temporary, in the same month it got its government largesse, Magnitogorsk Steel (MMK), one of GAZ’s primary metal suppliers, sued the car maker over the latter’s alleged $44m debt. Despite Oleg Deripaska’s clout, the court eventually ruled that GAZ had to pay MMK just under $40m.
Saddled with $1.24bn debt, GAZ tried to calm investors by announcing that it was renegotiating its loans with creditors and would immediately begin to make drastic changes in its business to enable it to break-even by July 1, 2009.
It told news media that production costs would be cut by 20%, labor costs by 50% and that marginal production sites would be dumped.
That was only the beginning. As its condition worsened, GAZ shocked more than investors when it suddenly announced it would be phasing out all passenger car production starting 2010 and writing off more than $150m it had already invested in its much-heralded Siber.
The bad news continued in May when GAZ said that to raise cash it had to sell its Birmingham-based LDV, a U.K. van company, to Malaysian firm Weststar. Deripaska had purchased LDV two years earlier for $33m but probably got less than $20m according to insiders.
Starved for cash, but sitting on a lot of unused production capacity, GAZ toughed it out and joined efforts in May with Russia’s Sberbank and Canadian auto parts juggernaut Magna for a $6.6bn bid to purchase 50.1% of General Motors’ Opel division.
But the deal didn’t pan out and things at GAZ went from bad to worse.
A few months later it announced the firing of about 7,000 employees from its Nizhny Novgorod plant. By the end of the year, almost 20,000 GAZ employees would be out of work and the once great GAZ Group was still reeling from the disastrous effects of 2009.
Sokol’s loan falconry
Nizhny Novgorod-based aircraft-building plant Sokol (Russian word for “falcon”) fared better than GAZ. Most of the headlines it made during the year were about securing enough loans to ride out the financial crisis.
In January Sberbank forked over some $220m to cover current expenses and refinance debts. In June, as the crisis peaked, the company went back to Sberbank for a five-year line of credit, but paid a whopping 20% interest.
Right before Christmas Kommersant reported that Sokol was successful in getting another $43m—this time from a consortium of Sberbank and Promsvyazbank.
Burdened with so much debt, Sokol’s $21.9m investment program had to be slashed to just $15m—but it struggled through the year intact.
Krasnoye Sormovo: success on foreign shores
Nizhny Novgorod-based Krasnoye Sormovo Shipyard, one of Russia’s oldest shipbuilding companies founded in 1849, is now part of the Sea and Oil Projects group of companies. Unlike GAZ and Sokol, it did well in 2009.
The firm set an ambitious sales target of $132m for 2009, telling media that it would focus its efforts on the overseas market.
Its first big contract was a $66.5m deal with Kazakhstan’s Kazmortransflot National Sea Shipping. The deal reportedly called for the construction of three oil tankers, with the first to be delivered to the customer in September 2009 and the other two commissioned and then delivered in May and August 2010, respectively.
In July, the company commissioned the first of the three Kazakh tankers with the capacity of 13,000 tons.
While its year-end sales fell short of the shipyard’s plans, the company is confident about its future. Just as 2009 ended, the shipyard announced $14.7m worth of credit lines with Sberbank to help support the Kazakh contract in 2010 and finance construction of additional oil tankers.
2009’s promising newcomers
In January Moscow-based KOF Palitra pooled efforts with Germany's A.S. Creation Tapeten to finance a $58m wallpaper factory in Dzerzhinsk, the region’s second largest city and a Russian petrochemical hub since the mid-20th century. Construction is scheduled to start later this year and last 18 months. The new facility’s projected capacity is 14.6 million rolls of wallpaper a year.
In May Spanish group Uralita announced it was considering building a plant to produce construction insulation materials and winterization systems from glass wool fiber and extruded foam polystyrene in the region of Nizhny Novgorod. Although final plans have yet to be made public, the company is reportedly still on track to build the plant.
In June, German investment company Lugas unveiled its plans for a $275m rolled metal plant for the town of Balakhna some 30 miles outside Nizhny. If the project is realized as planned, in 2012 the facility will be churning out up to 1 million tons or rolled metal products a year and employ 250 people.
Itera Group, Russia’s largest privately owned natural gas producer, announced in November its $1.4bn steam gas power station in Nizhny Novgorod’s satellite town of Kstovo. The station is expected to be launched in 2013 with a capacity of 900 MW for electricity and 840 Gcal/h for thermal power.
In Dzerzhinsk French auto components maker A. Raymond, German chemical company Lanxcess, Danish heating equipment manufacturer Danfoss, and Belgium construction materials firm Unilin all announced plans.
No bed of roses...
While these newcomers were announcing their plans, other international investors were calling it quits...or delaying their plans.
In February Finnish-Swedish timber and woodworking company Stora Enso announced it was indefinitely shelving its $1.8bn pulp-and-paper project in the region, attributing the decision to low demand for timber products due to the ongoing financial crisis.
A few months later, however, it gave regional officials hope by telling media that the project had been put off until “after mid-2011.” Today, the project, designed to produce up to 500,000 tons of pulp and 550,000 tons of paper a year, is still in limbo.
Switzerland’s Liebherr, a global player in construction machinery and aerospace component markets, had plans in 2008 to build a $300+m plant just outside Nizhny Novgorod. The first phase should have been completed in 2009, but recently the firm said the date had been pushed back to September 2010.
Two years ago, Russia’s SIBUR and Belgium’s SolVin had plans to build one of Eastern Europe’s largest PVC manufacturing projects in Kstovo. The new $720m factory, with a projected capacity of 330,000 tons of PVC a year, was supposed to start construction in the 4Q2009 and begin production in late 2010 – early 2011.
In April last year the partners told the media the cost of the facility had been revised and was now $960m. Six months later, the cost reportedly ballooned to over $1.2bn. Finally, it was announced that the plant wouldn’t begin construction until early 2010, with a completion date of 2013.
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