As the representative of DP World points out in a new appeal, the operator is ready to acquire the same 49% in the FESCO parent company, the Far Eastern Shipping Company.
Chemarda points out in a letter that the “investment project” regarding the purchase of a stake in FESCO and “meeting the standards of the Russian document flow” is not ready yet – it will be submitted additionally “in the coming days”. According to one of the sources of RBC, it was planned that Dmitry Medvedev, who until recently held the post of prime minister, by the end of February 2020, will present to President Vladimir Putin a report on the potential of this transaction. RBC sent a request to the representative of the new Prime Minister Mikhail Mishustin, who was appointed to this post on January 16, with a request to clarify whether the new head of the cabinet has this issue in his plans.
The representative of DP World in his letter does not indicate the status of negotiations with FESCO shareholders and other details of the transaction. He only claims that, having bought a stake in the group, DP World will strive for further development of FESCO, will modernize the Vladivostok port, having invested about $ 350 million in it, and expand the fleet of wagons to deliver a large number of goods along the Trans-Siberian Railway.
What FESCO is known for
FESCO is the third largest shipping company and the largest carrier of bulk and general cargo in Russia. Its main owners are Ziyavudin Magomedov (32.5%), who was arrested in March 2018 on charges of organizing a criminal community, GHP Mark Garber (23.8%) and the American TPG Capital (17.4%). The group owns a port in Vladivostok, railway operators and a large fleet of containers and fitting platforms. The company’s revenue for 2018 is 57 billion rubles, EBITDA is 10.6 billion rubles. The company’s capitalization following the auction on January 22 at the Moscow Exchange amounted to 24.1 billion rubles. (about $ 390 million).
In October 2019, Vedomosti reported citing sources that DP World and RDIF were ready to invest $ 2 billion in Russian logistics projects after purchasing a stake in FESCO. But these investments are not mentioned in the appeal of the DP World representative to the government. According to the FAS press service, RBC, the deadline for considering an application of an Arab investor to purchase a stake in FESCO was extended until February 26 “at the request of the applicant.”
Chemard’s cover letter indicates that the pamphlet entitled “DP World Plans for FESCO,” which he sent to these departments on January 15, was prepared by the operator “in accordance with the decisions” of the meeting with Deputy Transport Minister Yuri Tsvetkov on the modernization of transport and logistics infrastructure, Held on December 19th. At it, in particular, the development of the FESCO group was discussed, a source close to one of the participants in the meeting told RBC.
FESCO container ship in port of Vladivostok
RBC sent inquiries to Garber and TPG Capital. DP World really wants to buy a stake in FESCO, like other bidders, but the deal must be approved by Ziyavudin Magomedov, a source close to the leadership of FESCO told RBC.
How DP World intends to develop Vladivostok port
DP World promised to invest about $ 350 million for the modernization of the Vladivostok port, of which $ 200 million was intended to expand the capacity of container berths, another $ 150 million to increase its capacity, as well as to an “intermodal railway facility” in the port.
These measures will expand the possibilities of cargo handling in Vladivostok “to meet growing demand,” writes Sergey Chemard. He estimates the potential for increasing cargo turnover in the port “in the near future” to 600 thousand TEU (twenty-foot equivalent unit, or twenty-foot equivalent container) per year.
Chemarda makes a reservation that he uses the FESCO data for July 2017, which he received from the management of the Russian group when negotiations on a potential deal had just begun. In 2019, the volume of transshipment of the port of Vladivostok amounted to 625 thousand TEU, the representative of FESCO told RBC.
Who else wants to buy FESCO
In addition to DP World, the owner of the Delo group, Sergey Shishkarev, expressed interest in buying FESCO in December 2019. He made such an announcement just a month after purchasing control at the largest container operator Transcontainer. As the businessman himself said, FESCO “ideally lays down” in the composition of its assets: “Now we are working on it. I will speak with Rosatom (in November the state corporation acquired 30% in the Delo group. – RBC) and maybe look for a scheme, a formula that will allow us to come up with a proposal. ” He also did not rule out that “we’ll cooperate with someone [для покупки]for example with one of the international transport agents. ”
“At the moment, we are not considering the purchase of FESCO,” a representative of Rosatom told RBC. But he noted that the state corporation is negotiating with DP World for a “mutually beneficial partnership option” within the framework of the agreement of intent concluded at the St. Petersburg Economic Forum in June 2019. The interlocutor of RBC did not explain the essence of the partnership.
Is FESCO for sale
Ziyavudin Magomedov, being in a pre-trial detention center, over the past month has twice publicly denied information about the sale of a transport group. “In connection with numerous speculation, rumors and speculation around a possible change of shareholders in the FESCO transportation group, co-owner of the company Ziyavudin Magomedov declares that he categorically does not intend to sell his share in it. He is interested in developing the asset, increasing its market value, implementing a digital strategy and introducing 5 PL to bring FESCO to the level of the flagship of Russian and international logistics, ”the FESCO statement said on December 30. On Tuesday, January 21, a businessman’s representative said that Magomedov had not instructed the chairman of the FESCO board of directors, Leyla Mammadzade, to “negotiate with anyone” the sale of his share in the company.
“We are aware of DP World’s interest in FESCO, but the issue of managing shares is a matter for shareholders, we don’t give any comments,” the FESCO press service told RBC.
What DP World wants to get from buying FESCO
DP World’s FESCO strategy states that the port operator intends to “expand its presence in Asia,” including creating new hubs in China and Taiwan, and the Russian transport group will be part of this plan.
After the completion of the potential transaction, FESCO “will be integrated into the DP World global network as a company providing both Russian and foreign cargo owners with a wide range of logistics services,” Chemard notes in his letter.
- He promises that the Arab port operator will use its global commercial network to actively promote the Vladivostok-Moscow-Europe trade corridor, which FESCO is developing, as a “cost-effective alternative” to the traditional sea routes used by Asian cargo owners.
- DP World also intends to integrate FESCO into its other projects by offering an extended transit route from Asia to Europe via the Trans-Siberian Railway.
- DP World’s investment in FESCO will expand access of transit goods (from Asia) to the markets of Central and Eastern Europe through intermodal transport from Vladivostok, the representative of the Arab operator writes: “DP World will work with shipping lines and cargo owners to attract a large amount of cargo from Asia and Europe to Vladivostok. “
- The deal will open access for Russian and transit cargo to Western Europe and North America via the Northern Sea Route, as “it is becoming economically viable.”