Kharitonin couldn't wrap himself up in Mondi

Source The Russian authorities rejected the request of the co-owner of Pharmstandard, Viktor Kharitonin, to purchase the main asset of the Austrian Mondi in Russia – the Syktyvkar timber complex. Possible reason – too high transaction price The Russian authorities did not agree on the sale of the main asset of the Austrian Mondi in Russia – the Syktyvkar timber complex (LPK) in Komi – the structure of the co-owner of Pharmstandard Viktor Kharitonin for 95 billion rubles. (or approximately €1.5 billion). This was told to RBC by one of the contenders for the asset and confirmed by a source in the government. The fact that the deal, announced in August 2022, has not yet taken place, is also known to the top manager of one of the largest Russian timber companies.

Interlocutors of RBC tell two versions of who exactly refused to agree on the deal in its current announced configuration. According to a government official, the deal was rejected by the Federal Antimonopoly Service, where Kharitonin's structures applied for permission. Another source of RBC says that the government commission for the control of foreign investment did not give its approval due to its inconsistency with the approaches to the sale of assets of international companies in Russia as part of the termination of work.

The press service of Mondi recalled that the condition for the sale of the Syktyvkar timber complex to Kharitonin's structure is the approval of the Russian government's commission for foreign investment control and antimonopoly authorities. “The process of obtaining these permits is still ongoing,” they added. The company previously said it expects to close the deal before the end of 2022, but due to the changing political and regulatory environment, “there can be no certainty when it will be completed.”

RBC has sent inquiries to the press – services of Pharmstandard, government and FAS.

What was known about the deal

Syktyvkar LPK is one of the leading enterprises in the pulp and paper industry in Russia and, according to its own data, the largest paper producer in the country. This is a plant with a full production cycle: from timber harvesting to production and shipment to customers. The plant annually produces more than 1.1 million tons of office, offset and newsprint paper, containerboard and dry market pulp. The most famous brand of the company is Snegurochka paper.

In May 2022, two months after the start of Russia's special operation in Ukraine, Mondi announced plans to exit the Russian market, which provided about 12% of its group-wide revenue (€7.7 billion last year) and about 20% of EBITDA (€1 .5 billion). The company held a competition for the selection of applicants for the Syktyvkar timber complex, in which, according to RBC interlocutors, several specialized investors and businessmen from other industries took part. As a result, on August 12, she entered into an agreement with Kharitonin's structure – the investment company Augment Investments Limited, which, according to the Austrian company, owns assets in the pharmaceutical and other sectors in Russia, Europe and the UK.

It was assumed that Augment would pay 95 billion rubles for the plant. (at that time – €1.5 billion). The deal was not supposed to include only cash balances on the company's accounts in the amount of 16 billion rubles, which were planned to be transferred to Mondi in the form of dividends (this would require the approval of the Russian Ministry of Finance).

On December 15, Mondi entered into an agreement to sell three more smaller assets in Russia – corrugated cardboard and packaging plants in the Yaroslavl, Lipetsk and Sverdlovsk regions – for 1.6 billion rubles. (about €24 million). Their buyer will be the Gotek group of companies, which calls itself the largest Russian manufacturer of packaging and packaging materials made of cardboard and flexible polymers. This transaction, which is scheduled to be completed in the first half of 2023, is also subject to the approval of the FAS and the government commission on foreign investment. Then the Austrian company emphasized separately that this agreement had nothing to do with the sale of the Syktyvkar timber complex.

Why did the authorities block the deal

The price that Kharitonin's structure offered for the Syktyvkar LPK turned out to be significantly higher than that of other applicants, but the government commission on foreign investment refused to approve it, one of the participants in the tender told RBC.

According to him, the Russian authorities do not coordinate transactions with the assets of foreign investors leaving Russia, the value of which exceeds three annual EBITDA. Finance Minister Anton Siluanov spoke about this rule at the end of June at the congress of the Russian Union of Industrialists and Entrepreneurs. Then he warned that when considering the sale of a business to a foreign company, the governing commission on foreign investment relies on two criteria: the consent of the relevant department to sell the asset and purchase it by a local entrepreneur, the second is that the discount must be at least 50% of the last official estimate or the amount transactions should not exceed 1–3 EBITDA. “If they want to leave, let them experience certain costs in exiting this asset,” he stressed.

According to Mondi, the Syktyvkar mill generated €821m in revenue in 2021, €334m in EBITDA, €271m in pre-tax earnings, and reached €225m in EBITDA in the first half of 2022. The Austrian company estimated its net asset value (net asset value) of its entire Russian business (the timber industry complex and packaging plants) at the end of 2021 to €687 million, and as of June 30, 2022, the net asset value of the Syktyvkar plant alone increased to €1.203 billion. Thus, when assessing the plant according to last year's indicators, its value should not exceed €1 billion, and with a 50% discount to the cost for the first half of 2022 – €601.5 million.

Due to the discount requirement of the Canadian Kinross Gold had to halve the value of its Russian assets in June (from $680 million to $340 million) in order to get permission for the deal from the government commission (they were bought by Vladislav Sviblov's Highland Gold). A government source confirmed to RBC that the application of Kharitonin's company to buy the Mondi plant was rejected, but he did not specify the reasons.

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