Analysis: Uralchem, a Minority Shareholder in TogliattiAzot, seeks to reduce social spending to maximize its profits badly needed to pay down debt

Dmitry Mazepin’s Uralchem, a large chemicals and mineral fertilizers group, has been trying to establish control over Togliattiazot (ToAZ), the world’s largest producer of ammonia – an important ingredient of most fertilizers and other industrial chemicals – for years. Lacking free cash or borrowing capacity (Uralchem reported net debt of US$ 970 million at year-end 2011, with little hope of refinancing in the current market, its IPO ambitions dashed for the time being, and its ability to pay down the debt at a fairly low level), the chemicals conglomerate has been willing to resort to “unorthodox” methods of corporate action, according to the Russian media. A recent open letter by Togliatti residents to the nation’s top law enforcers provides some idea of these methods, which include “false, misleading information about the allegedly impending industrial and environmental disaster, about a “second Fukushima”… offers of money to [city residents] to write complaints against Togliattiazot to law enforcers and regulators… threatening, negative messages [throughout the city on walls, fences, and billboards], and […] unauthorized protests by hired demonstrators from out of town…”

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Analytics: Post-Soviet Assets Still Carry Major Political Risks for Investors

New York — Amid worsening economic situation in Western Europe and the US, international investment funds have turned their attention to former Soviet Union (FSU) countries, including Russia, Ukraine, and Georgia. Currency fluctuations and rising purchasing power in these countries make them an important destination for investors. (The average purchasing power in these countries has increased 90% since 2001, turning them into substantial and growing consumer markets.) However, investors should be wary of political risks associated with acquiring “post-Soviet” assets as they can affect investors’ status in Russia and even in their home markets.

Renewed interest from investment groups in acquiring Salford Capital Partners, owner of IDS Borjomi, the famous naturally carbonated mineral water brand and number one export from Georgia, is due to the company’s success in Ukraine and other Eastern-European countries except Russia, where Borjomi is banned.

However, acquiring Borjomi can create major political problems in Russia for potential buyers — Salford Capital Partners is owned by Boris A. Berezovsky, exiled businessman and vocal critic of Vladimir Putin’s regime. Berezovsky controlled Borjomi and other post-Soviet assets, such as Aeroflot, AvtoVAZ (maker of Lada passenger cars) and Channel One TV, with his partner, late Badri Patarkatsishvili. Berezovsky was forced out of ownership of his Russia-based assets, but managed to retain control in Salford Capital Partners, incorporated in the U.K. and managed by a US national.

According to RUXX research, international funds TPG and CVCI are among potential acquirers of Salford. Both funds have presence in Russia: TPG has acquired major Russian retailer Lenta and was in talks for stake in VTB, Russian state-controlled bank with close ties to the Kremlin. Buying Borjomi and effectively financing Boris Berezovsky can undermine their ability to work in Russia, where good will of the Kremlin is a requirement.

Buying assets from Berezovsky also carries financial and litigation risks, as the Russian government and private investors around the world are after the businessman’s properties. According to a poll of legal experts conducted by RUXX index, there is a real risk that “all deals that involve Mr. Berezovsky’s assets can be challenged.”

“So-called “post-Soviet assets”, i.e. brands that were famous in the Soviet Union and popular now, such as Aeroflot, Stolichnaya, and Borjomi, often carry a political stigma and investors should use extreme caution when they consider acquisitions,” says Ilya Lushnikov, senior analyst for RUXX Index that tracks Russian stocks traded overseas. “All business is political in Russia, and it’s important to weigh risks,” adds Lushnikov.

RUXX Analytics: Major Changes Expected in Russia’s Oil and Gas Sector

New York -- Energy prices fluctuations and ruble devaluation along with political instability in Russia are likely to cause major changes in the Russian energy sector. Recent major conflicts in the industry, TNK-BP and Timan Oil and Gas, are first indications of reshuffle in the Russian energy sector, according to analysis by RUXX index that tracks Russian equities.

BP has been looking for buyers for its stake in TNK-BP, the third-largest Russian oil producer, since early June, after a long saga of shareholder conflicts with its Russian partner AAR and a long-standing feud with the Russian government agencies (that included police raids, denied visa applications for UK executives, and foiled M&A transactions). Timan Oil and Gas Plc (TOG), an exploration and production company with 270 million tons of extractable crude reserves, has seen a controlling stake change hands from British owners to a Russian tycoon, allegedly unbeknownst to the former.

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Environmental Violations Threaten Russian Potato Market

July 18, 2012  New York – Russia became a net exporter of potatoes in September – November 2011 for the first time in years, Fruit-Inform reported earlier this year. The key market for Russian potatoes is Azerbaijan, with smaller quantities also exported to Georgia (the country), Tajikistan, Uzbekistan and Mongolia. However, this lucky break for Russian potato producers may be undermined by lax environmental standards and even laxer enforcement.

In a recent incident, crop dusting planes hired by Maxim Gorky LLC, a division of National Soil Company, a large potato producer, owned by Russian oligarch Alexander Lebedev, have strayed over a residential community in Tula Region, which triggered a parliamentary inquiry, revealing a host of unsavory facts about the company and its business and environmental practices.

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(CORRECTION) RUXX: Western Companies Appeal to Russian President To Curb Corruption

New York -- Western companies doing business in Russia often find themselves in courts against their former Russian partners. According to statistics compiled by RUXX, index that tracks Russian companies traded overseas, more than 75 percent of court rulings in Russia are against Western companies. The percentage in even higher in courts outside of Moscow.

Several large corporations have appealed to Russia’s leaders trying to bring their attention to possible “managed” court rulings. Italcementi, one of the world’s largest makers of cement, expects to see its dispute with Russian cement maker Siberian Cement over EUR 50mn forfeited commitment fee to go before Russia’s Supreme Arbitration Court. Even though the Italian company was in the right to withhold the deposit, it may see its appeal denied one more time by the Russian court.

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