Newspaper “Kommersant”, 13/07/16

The owner of Delo Group Sergey Shishkarev – about the Middle Eastern investors, deep-water berths and the family business

At the end of March, it was reported that Delo Group is preparing one of the fewest in the last years deals with foreign investor in the sphere of transport – a sale of 49% shares of the Novorossiysk container terminal NUTEP to the United Arab Emirates’ holding company DP World and RDIF (Russian Direct Investments Fund). The owner of Delo Group Sergey Shishkarev told Kommersant about negotiations with UAE investor and about the other failed and perspective deals.

Where does a deal with DP World stand and what are your following steps?

Now we are close to finishing preparation of the sale and purchase agreement and the shareholder’s agreement.

What is the main subject of negotiations?

Firstly it is the management conditions where the boundaries of responsibilities of both sides lie.

Is it difficult to hold negotiations with Arabs?

As a matter of fact, as I see it, negotiations are close to perfect. Honestly we were expecting a more commercially aggressive behaviour but the dialog that runs between us the DP World is more than satisfying.

Who represents RDIF during these talks?

The Fund primarily deals with the matters of cooperation with the Federal Anti-Monopoly Service and the Government Commission on Monitoring Foreign Investment.

What is the value of the transaction and its conditions?

I am not ready to comment on the details before the deal is closed.

You wanted to sign the documents at St. Petersburg International Economic Forum, why was it postponed?

We decided to sign it only after the final approval from the Government Commission on Monitoring Foreign Investment and it was impossible to get it before the Forum.

When the Commission can review the deal?

Now we are leading the preparatory work and when everything is ready we will finalize the agreement. Right now I can only say that everything goes according to the schedule.

Are there any questions from the Federal Anti-Monopoly Service?

The deal has to be approved by the Government Commission because port is a strategic asset and DP World is a foreign company. Moreover, there is a range of questions regarding future management and reserved shareholder matters for securing adherence to the proper participation for DP World. So we have to explain the system of future management and the balance of authority.

Are the Government officials worried about the changes in the market after the deal is signed? Are there any behavioural restrictions?

The change in the competitiveness dynamics will change after completion of our investment program, not before, so the signing the agreement will not have significant influence on the balance of power on the market.

Are the Western sanction influence the negotiations in any way?

This matter was never an issue – neither officially, no

In case DP World will want to attract foreign financing for the agreement, can it cause problems?

This agreement does not assume attraction of foreign financing – DPW invests with own funds. But this is their internal affairs and it does not concern us.

It is not the first month that negotiations are ongoing. Meanwhile the situation on the market is improving or getting worse?

The situation is definitely improving. We see clearly that the export-import market where NUTEP operates, undergoes successful substitution of sanctioned European goods and cargo by the ones from Syria, Northern Africa, Algeria, Israel, Egypt.  It is very profitable for Novorossiysk, regardless the decline of cargo flow from Turkey.

This process is overlaid by activation of export and re-export cargo flows. For example, we launched a project of polypropylene handling at NUTEP, cargo that  is exported from Uzbekistan. In April-May 2016 we recorded a record turnover at NUTEP – 24-25 thous. TEUs per month. Revenue growth is 32% RUB and 9% USD. We even witnessed the lack of empty containers for Russian export that added ship entries to NUTEP.

NUTEP received first shipments of the new foods import scheme from Syria. Has the flow stabilized or grew?

Not yet, it was more of test shipments. We have managed to create a maximum fast way of port and customs handling of cargo. But now all the problems are on Syrian side, where the infrastructure for foods shipment was severely damaged during the war and that causes quality issues. I hope they can work it out and the shipments stabilizes. Primarily we were talking about the volume of 200 thous. tons of foods.

Do the conditions of the deal with DP World assume any agreements on coordination of market operations?

Sale of a share in NUTEP is just the beginning for Delo Group. We already discuss future common development plans with our partners. The conditions of the deal assume strict limitations regarding the solo entry or participation in container assets at the Black Sea. As for the other Russian container assets – there is notifying principle and the right of first refusal.

Does it mean that you plan to consolidate other container assets?

Yes, it does – at the Black Sea and in Russia in general. We discussed this with DP World. It is evident that the plans can change due to various circumstances but we do see a long-term strategy in construction of a specialized large holding company.

However, you haven’t participated in the auction for purchase of 30.3% of shares of Novorossiysk Ship-Repair Yard (NSRZ) from the state-owned United Shipbuilding Corporation at the end of May. Delo Group didn’t conceal the interest for this asset, but at the end it didn’t even try to compete with the its major shareholder Novorossiysk Commercial Sea Port (NCSP) that offered starting 1.1 bln RUB. Why is that?

They were selling a minority interest without any prospects for control. In the best case scenario for Delo Group it would mean a joint venture with NCSP and in the worst – freezing of funds. We have our requirements for the internal rate of return on the projects – about 20% IRR that we couldn’t secure in the possible ownership structure.

So the curtain is dropped on the NSRZ? Will you not try to challenge the results of the auction?

No, we will not. The Yard has the one owner and that’s it.

It is traditionally thought that you have strained relations with Summa Group. Now is there a possibility of joint projects of at least some sort of cooperation?

Yes, there is.

You have often criticized the project of new port Taman construction. But now when NCSP wishes to become its key shareholder with a prospect of coordinated cargo flow division between Novorossiysk and Taman. Does it change your attitude to the project in any way? Was it discussed with you?

The idea was not discussed with us and it doesn’t change our opinion regarding the project. It is still not clear what is the rationale of a greenfield port construction in Taman when we have free capacities at Novorossiysk terminals with undergoing development project of throughput capacities expansion. The Government largely invests in Novorossiysk’ transport infrastructure improvement (railway yard “B” and the auto-road Tsemdolina-Portovaya). Construction of the new port greenfield will be much more expensive per tonne of cargo, and the project terminals duplicate already existing terminals for handling of containers, coal, iron-ore concentrate, mineral fertilizers, metals and grain.

At the meeting with Vladimir Putin on 20 August 2015, when the President received reports about the projects in Novorossiysk and the overall situation, the decision was made about the necessity of additional rationale of the Taman port construction project, including recommended binding agreements with cargo owners on take-or-pay basis. Unfortunately, the agreements in the current format misinforms the governmental authorities and do not hold the contractor responsible for implementation of expensive projects, which Government paid for, and leaves questions regarding its future pay-back.

What are the other projects you plan to fulfil in the Novorossiysk port?

Construction of a deep-water berth No. 38 at NUTEP container terminal has already started, with the new berth we will be able to receive vessels of 8-10 thous. TEUs. It will be launched in 2019. The new berth will be our unique competitive advantage since now there are no deep-water berths in the Black Sea ports for direct entries for ocean vessels (so called “mother vessels”). Container terminals of the Russian South are served by feeder services, which means double transhipment.

We have also approved an investment program at KSK grain terminal: extension of berths, dredging, increase for simultaneous storage capacity to 200 thous. tonnes, all of that resulting to annual throughput capacity increase to 5 mln tonnes. Construction is planned for 2017-2018.

In the nearest future we plan to sign the agreement on construction of four tow-boats and to create a specialized company. By the end of 2017 we will have the whole line of vessels. We would like to time it with the launch of the new deep-water berth.

But NCSP and Rosnefteflot already operate on this market, is there a space for a new company?

We are counting on handling only own volumes, grain carriers, container vessels, ferries, service vessels. Moreover, we will try to organize assembling of vessels at our own shipyard in Novorossiysk. We’re discussing creation of joint venture on the basis of “Aleksino Port Marina Shipyard”. In general, I would like to develop ship-repair and even shipbuilding capacities here. Our past interest for NSRZ was tied with this project.

You have other port assets including Grain terminal KSK. What is the current situation with grain handling?

The past 2015-2016 season was very positive, total throughput capacity increased by 20% reaching 3 mln tonnes. In the new season we hope for an additional 10-15% increase. Prognosis for the record harvest add to our optimism. However, we see that the season will not be easy. We have good forecasts not just for Russia, but in Europe, America and Ukraine – our direct competitors, that will probably effect the price decline at world exchange. Strengthening of ruble during 2016 also has a negative effect on domestic grain market.

In which direction you plan to develop grain export?

We would like to open Egypt and new markets for KSK. Here there are some technological limitations regarding depth of the port – it is impossible to berth a vessel of necessary tonnage. We’re working on this issue, but firstly Russia has to come back to Egyptian market. In March Russian traders lost sales contracts with the State Architectural and Construction Supervision Authority (GASK) to the French, Romanian and Ukrainian traders. Our grain was more expensive and we had to search for new sales markets.

New round of talks about the privatization of the United Grain Corporation started (OZK). Are you interested?

OZK consolidates valuable assets that could be developed separately. But their combination in a single holding company it is still not clear for the market players. Be reminded that OZK is a successor of federal state unitary enterprises, which were not created for commercial activities. It might be very interesting if the holding company was reorganized and separate business segments were privatized.

You do not usually give official comments regarding your grain business – you own 50% of the Krasnodar Miro Group headed by Andrey Doluda. What are the development plans for this business?

It is not a secret that we bought 50% of Miro Group. The Company has provided one third of KSK turnover during the last grain season. You know, for a while I had been an absolute opponent of such a vertical integration, thinking that if you operate in transportation, just keep doing it. But our terminal’s development required having the own grain trader. Competition among the terminals is fierce, and with the own trader we understand the market better.

Miro Group was already an active player of the Russian grain export market. In the last year the Company was in the top-5 of the largest grain exporters, having outpaced many transnational holdings with a century-long history. But our ambitions aim higher and higher, we started to invest in the agricultural lands. The first deal for 7.5 thous. ha in Krasnodar region was closed in June. The land remains underappreciated and we see it as potential for further growth.

Are you primarily concentrated on Krasnodar region?

Krasnodar, Stavropol, Rostov. Do you know why? Firstly, everything has to be done fast, the competition is fierce. Secondly, we need to study every possibility separately, because we have limited financial resources and will not finance the grain business at the expense of transportation assets, – this is my fundamental principle.

Is Miro Group the new owner of the land?

We created a new company Miragro, where Delo Group owns 58%. The idea is to create a separate agricultural business – a large land-bank, developing own production, processing and export of the finished production. Potential investors from UAE and even Australia have already expressed interest for this project. I have a dream to launch grain processing in Novorossiysk.

Are you looking into purchase of any other assets?

Now we see a lot of bankruptcies, including interesting assets in the logistics and storage. We have what to choose from.  We are researching assets close to the port. Moreover, we still have 13 ha in 7 km distance from our terminal – flat surface, good land plot with the adjacent railway branch and transport infrastructure developing around it.

Do these assets interest you as logistics points or for possible production, including grain processing?

First of all, it is logistics, but we would also like to organize the production of flour, industrial food ingredients, muesli, for example: you produce, load into container and ship for export. These are all very new projects for me but very interesting too – it is probably the time to start supplying production of advanced processing to the domestic market.

What does Novorossiysk lack in terms of infrastructure? Are there any bottlenecks, limitations of the access way that affects throughput capacity?

No, this is a myth, everything is fine. Certainly, if we talked about the increase of the throughput capacity to millions of tonnes annually, there would be a necessity for railway infrastructure development and related financing. But today the turnover is more or less stable and there are no problems or limitations. Russian Railways implements its investment project in Novorossiysk; we don’t need new grand programs contrary to Taman for example.

And as for the port and the state-owned assets?

Everything that is accepted in the Federal Special Purpose Program regarding Novorossiysk transportation hub is more or less well-financed, and given the current reduction of export-import operations, the situation is satisfactory.

Are you looking for projects away from the South region or is it too risky?

Why not. As container operator we are already present in Kazakhstan, Central Russia, Ekaterinburg, Novosibirsk, and the Far East. Certainly we would like to turn to the terminal assets. That is why a year and a half ago we were looking into the Far Eastern region but didn’t find a common ground. Now we are observing the market in terms of the assets for-sale. North-East is also an attractive region.

But are you not interested in the North region? You are a member of the Governmental Commission on Arctic Development, somehow it seems that this topic gradually loosing focus, as against one – one and a half years ago. To be honest, it seems like nothing is happening…

In fact there are two contrary approaches – the regional, supported by the Ministry of Economy for some reason and the federal, which among others I do support.  I believe that plans and efforts on Arctic and the Northern Sea Route development should be consolidated and centralized, only this scenario would guarantee a success of such an immense project. Nevertheless the Commission is working for over a year now but there are no significant results or far-reaching decisions.

So, does it mean the Commission on Arctic Development is a redundant instrument?

No, in theory it is not. It should be the intergovernmental instrument for cooperation and arbitrator in such questions as budgetary planning, resource distribution, finances and administration, coordination of legal provision. In theory, the Commission should work out the correct legal basis, rules of the game in the Arctic. However, this can be implemented only in case of a distinct and clear wish of the state to actively develop this region.

What are the most critical issues and problems there?

The problem is that everyone is ruled by their own interest. I think that the main problem is incorrect distribution of the resources given their deficiency. We need a strict prioritization. For example: this year we’re dealing with communications, the next year – science or transport. After all by this moment we don’t have detailed, economically-based calculations for Arctic’s necessities such as icebreakers assistance – to name just one. We still don’t know how many icebreakers we need and which kind. Arctic is a region that cannot be left without attention.

What about Iran? Have you already looked in the projects there?

Certainly Iran is very interesting: over 80 mln people in the region historically drawn to Russia. The logistics can be quite simple – we supply grain and they supply foods.

But Russia already exports grain to Iran. Are you not taking part in that?

Not yet. We haven’t reached Iran yet, but the negotiations will be held in the nearest future. Miro Group has a few perspective customers and a very interesting logistics structure via one of the small free terminals of the UAE. We can deliver grain, store and sell by small loads to Iran and other states.

You have many contracts with Arabic partners. What are the pros and cons of working with them?

I don’t see any cons. I like to do business with them. They are very consistent in the process of negotiations. Why the Arabs you ask. Because in my opinion they built long-term operating models for 30-50 years. They don’t care too much about the current volatility in Russia but they do care about own development strategies. Long ago they have chosen a strategy of diversification, investing in service industry, tourism, real estate, logistics, and probably in the least are influence by the United States. There is the least of politics in doing business with our Arabic partners.

There’s one thing I would recommend if you’re working with Arabic investors – you should talk over and put on paper every little detail and nuance. Everything should be like in a good prenuptial agreement – to the last detail.

Recently the newspaper “Vedomosti” wrote about a legal dispute for $24.5 mln with you nephew Timofey Telyatnik, the ex-president and co-owner of DeloPorts. A year ago your “divorce” seemed quite peaceful, what has happened?

We have indeed had a civilized break-up; we were simply tired of the difference in the points of view on tactics and strategy of further steps of development. Youth tends to maximalism in doing business and the experience calls to being more careful and to compromise. At one point of our “divorce” Timofey’s attitude revealed a new side to him and I was very disappointed. Some time ago I gifted a share in business to him, however regardless the circumstances at that time I decided to buy it out.

We have agreed on payment in tranches. I entered the deal openly and expected the same from him. But it the process of preparation, execution of the agreement and afterwards new facts have been revealed that pointed to non-compliance to the real state of affairs. I don’t want to go into the details due to the moral and ethical reasons but firstly due to the respect to the court of law, where the dispute is not resolved yet.

Side by side with the deal on NUTEP you have discussed the sale of a share in DeloPorts to other Arabic investment fund – Mubadala. What’s going on with these negotiations?

They are put on hold at least till the closure of the deal on NUTEP.

Just over a year ago, you headed the Handball Federation of Russia. Does anybody else in the business circles support and finance this sport?

In 2015, Andrew Kozitsin, Ural Mining and Metallurgical Company owner helped us very much. The World Men’s (U19) Handball Championship was held in Ekaterinburg and he practically bore all the expenses of it. I really hope that the effect from the advertisement was good– at the play-off and at the final competitions, even though the Russian team did not play the arena; we gathered a full house – 7 thousand fans.

I also asked for support of Mikhail Gutseriev and he had helped us a great deal as well. His charity work is highly efficient; it is strongly and fully controlled. As a result, he has allocated 30 million rubles for children’s handball. “Novikombank” and “Sovfrakht” helped us too.

So you have pulled a few personal strings, haven’t you?

Of course. Surely we would like it if the Ministry of Sports and the Olympic Committee gave more funds. The national team is funded not only by the Federation. I was expecting a more active participation. Surely now it will be easier, because we have a “product” – one of the few national teams, which is going to the Olympics.

What are the prospects of our women’s national team?

We will fight for the medals. Everybody criticizes me for making ample promises. But these are not promises, but goals that I set for the team, and our girls very skilful and ambitious: the balance of youth and expertise, there are honored masters of sports, who remember the victory at the World Cup in 2009 and promising newcomers in the team. I think there is every reason to hope for medals. We have got out of Poland, our troublesome rival, in Astrakhan. We defeated the teams which are in top now (Norway, the Netherlands, Romania, France) during the qualifications and competitions before the World Championship. Regarding the preparation for competitions – everything is well-organized, all the conditions including recreation after heavy physical activities are set. We have rented the only available extra sport hall in Rio de Janeiro for training. The girls will have time to adapt as they’ll go there in eight-nine days prior to the Olympics.

Why did you choose handball? Is it due to the friendship with Deputy Prime Minister Dmitry Rogozin?

Among other reasons, yes. In fact, I was into football. But when I was proposed to run handball, it seemed interesting. It is not as capital-intensive as football and much cleaner. History of the Russian handball is rich – there were great victories, world-renowned names. Our handball school is good and there all chances for its further development.

You are always talking about the girls, and what about the men’s team?

In my opinion, we played well at the last European Championship compared to previous competitions. One more ball and we would get the Olympic qualification. All is not lost yet, there is an interesting internal rivalry. The team “Chekhovskiye Medvedi” has been the national champion for 15 years running. But in 2016 there was a real fight among three clubs, three ambitious persons. First of all, I’m talking about Vladimir Maksimov, the honored coach who won the last Olympics in Sydney, now trains “Chekhovskiye Medvedi” (Chekhov Bears) and competes with his pupils: Dmitry Torgovanov – “University Lesgafta-Neva” and Lev Voronin – “Permskye Medvedi” (Perm Bears) – the two Olympic champions from the Maximov’s former team. They have every chance to challenge the leadership of Maximov and his “Bears”, and become the champion. The fight is fierce and judicial disputes are intense; where it’s necessary, we carry out disciplinary jury sessions. So, the male handball is far from hopeless.

Moreover, we are creating a handball super-club in Krasnodar; there are good traditions and an excellent sport base there.

What about the football club “Kuban”? You have paid off the debt of the club, and offered your own version of management. What is the solution?

We are holding a dialogue with the Administration of the Krasnodar region and the club itself about the debt repayment. The company, which is a part of my Delo Group, gave a loan of 145 million rubles to the club. We are now in the process of negotiation on the issue. Let’s see if Kuban people are as good as their word. At the moment, there are no further invitations to debates about whether my management skills are in demand for the football club “Kuban”.

Do you spend a lot of money on handball?

Hundreds of millions rubles. I can’t tell you off the top of my head, but as of April, 7th, it was the anniversary of my election and to this date I’ve spent 200 mln. rubles, including bonuses for the girls’ qualification.

Does it yield any dividends to you?

Moral benefits most of all.

So is it just a hobby?

It is an enthusiasm, willingness to help at least one of the Russian sports. And to achieve results. I am really addicted to it, I spend a lot of time on handball, maybe inexcusably too much. I thought I would spend about 20-25% of my time on handball but now I spend on it almost a half plus travel, plus the requirement for presence at all sorts of international “get-togethers”. The elections to the European Federation of Handball are coming soon, a year later – the international and we need to restore and develop lost contacts. These are personal contacts and my personal time. But we have some very interesting ideas, for example, to join together the football and handball fans clubs, as it happens in many other countries.