USC eyes new shipbuilding assets

United Shipbuilding Corporation (USC) believes the acquisition of shipyards specializing in the construction of river-sea going vessels as promising. USC mulls over acquisition of Krasnoye Sormovo Shipyard, Okskaya Shipyard and Nevsky Shipbuilding and Ship Repair Yard. On the other hand, the Corporation loses interest in buying Baltic Shipyard which, according to the Accounting Chamber’s audit has been on the verge of bankruptcy. USC now stake more on the construction of a new shipyard at the Kotlin Iceland. As to a modern super shipyard project on the bases of Northern Shipyard in Primorsk, the Corp. management now considers it as unfeasible.

Awaiting preferences

The Russian State Duma has approved in the first reading a bill on the support of shipbuilding and shipping industry, which provides a range of benefits to domestic shipbuilding companies and ship owners who have decided to build vessels at the country’s shipyards and sail under the Russian flag. This and other initiatives of Russian officials to encourage the sector give hope there will be a surge of newbuilds orders, river vessels and mixed class "river-sea" ships to at Russian shipyards.

The Corporation believes this segment to be one of the most promising and plans to acquire the facilities, USC’ Deputy Head of Strategic Development Department Gregory Minor told PortNews. Nizhny Novgorod-based Krasnoye Sormovo plant is the most valuable asset for USC, the holder of a 33.53% stake in the shipyard. The remaining shares are owned by the MNP Group.

Krasnoye Sormovo is able to perform both civil and military orders, so USC plans to split the shipyard facility into two yards. As MNP Group has commented, the division of the shipyard into two separate yards area or enterprises is impossible, since it is a single economic complex.

Krasnoye Sormovo executes orders for river and sea going bulk carriers and tankers, offshore drilling rigs and supply vessels for them. This is also promising in view of broader plans to develop offshore fields. MNP Group said the shipyard, which has built nearly 280 submarines, currently does not have military orders.
 

Nevertheless, the negotiations on the MNP’s stake buyout are difficult. According to Gregory Menshikh, the Corporation intends to acquire the stake on the basis of the plant’s assets assessment. MNP Group declined to comment the negotiations, saying only that there has been no concrete result of the talks.

As to Nevsky shipbuilding and ship repair yard and Okskaya Shipyard, USC is negotiating the purchase deal with UCLH, owner of majority stake in the shipyards. UCLH is associated with Russian businessman Vladimir Lisin. Earlier, USC’ head Roman Trotsenko has stated the negotiations on these assets can be completed in the fall of 2011.

UCLH said, commenting on the decision to sell its assets, the shipbuilding was not its core business, and that the Holding is going to focus on the stevedoring and transport sectors.

"Negotiations are continuing. It’s far too soon to talk about specific dates for its completion, but we plan by the end of this year, to decide the fate of our shipbuilding division," PortNews quoted UCLH’s spokesperson Dmitry Baukov as saying. UCLH did not comment the assessment made by USC.

Mega shipyards no longer needed

There have been lots of rumors recently about projects to create new super shipyards in the North-West Russia. In particular, Vyborg Shipyard (VSZ) had announced plans to build a new plant in Primorsk, and United Industrial Corporation (UIC) – about new yard on the basis of Northern Shipyard in St. Petersburg, through its merger with Baltic Plant and relocation of its facilities to Northern Shipyard.

USC, which had made bids for all the three shipyards mentioned above, if successful, would give up the plans. As Gregory Menshikh has explained the construction of the shipyard in Primorsk would require a huge investment in building of the zero-based shipyard, which makes economically the project unfeasible.

The project of new shipyard in Primorsk worth RUB 58 billion, for construction of LNG carriers of displacement of up to 200,000 tons, ice-class 100,000dwt tankers and offshore drilling rigs, has been recently frozen, Vyborg Shipyard said.

In case of acquisition of Vyborg Shipyard, the Corporation is going to use it for execution of subcontracts. Currently the Vyborg-based plant is building blocks for ice-class PSVs ordered by Sovkomflot, which will be assembled at Arctech Helsinki Shipyard, a JV of USC and South Korea STX.

Another project - the creation of a super yard at Northern Shipyard – was announced by United Industrial Corporation, the owner of Baltic Shipyard and Northern Shipyard, after it had reported of its plans to demolish Baltic Plant to clear the territory on Vasilevsky island for development projects.

Later UIC dropped the plans, however, continued to promote the project of a "modern and high-level standards” shipyard, which could manufacture 300,000dwt vessels. The huge shipbuilding complex, producing up to 500,000 dwt a year, was projected to be created on the basis of existing facilities of Northern Shipyard and Baltic Plant by their renovation, modernization and new construction.

If United Shipbuilding Corporation buy out Baltic Plant and Northern Shipyard it will abandon the ‘mega shipyards’ plan, Gregory Menshikh said.

"There is no possibility for creation of a super yard in St. Petersburg downtown. If we buy Northern Shipyard it will retain his current specialization, Baltic Plant as well," USC’s spokesperson said.

Actually, USC is not much interested in these plans, since the Corporation intends to implement its own project on the Iceland of Kotlin.

Gregory Menshikh also noted that Baltic Plant is becoming a less liquid asset and in 2-3 years can generally get a negative market value. USC fears that the plant property could be acquired by third-party entities, and the staff may face holdback pay, which will lead to the loss of the enterprise team. In this regard, the corporation considers it necessary to conduct inspection of the plant activity by the relevant regulatory bodies. As USC’ President Roman Trotsenko said during the Naval Salon 2011 in St. Petersburg, "we would not be willing to buy assets that need reorganization." According to him, the corporation has made enormous efforts and incurred expenses rescuing other shipyards, in particular, Amur Shipbuilding Plant.

Currently, 75.8% of shares of Northern Shipyard and 88.3% shares in Baltic Plant have been transferred to RF Central Bank according to pledge agreement.

The Accounting Chamber of Russia, following an audit of Baltic Plant and Northern Shipyard, concluded that these companies could face bankruptcy procedures.

According to the report of appraiser, CJSC BDO, the market value of 75.8% shares of Northern Shipyard is at 64 billion 641.5 million rubles, of Baltic Plant’s 88.3% shares - 35 billion 370.5 million rubles.

Russian Council of expert organizations Russian Society of Appraisers found the appraiser’s report as ungrounded, not relevant to formal requirements of the Federal Law" On appraisal activities in the Russian Federation".

USC also did not agree with the assessment and the buyout deal negotiations was delayed. "Actually, I do not understand what UIC is waiting for? They should be interested to sell the losing value assets as soon as possible," Gregory Menshikh was quoted as saying.

However, USC’ head believes the situation should be resolved, one way or another, before the end of 2011.

As to Baltic Plant, its fate is less clear. The idea of removal of Baltic Plant is not new. In the future, USC could focus on creation of a new Kotlin shipyard, which will built icebreakers, LNG carriers, pipe-laying vessels, and other ships for operation in the northern seas. If USC fails to buy out the shipyard, it will most likely become a site for commercial buildings.

Vitaliy Chernov.