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Russia’s Rostec to attract Asian funding for big projects in Pakistan and Uganda

March 09, 11:47 UTC+3
Russia’s hi-tech state corporation plans to sell stakes in Russian Helicopters and KRET (Concern Radio-Electronic Technologies) in 2016, company's CEO said
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Rostec CEO Sergey Chemezov

Rostec CEO Sergey Chemezov

© Anton Novoderezhkin/TASS

MOSCOW, March 9. /TASS/.  Russia’s state hi-tech corporation Rostec may attract Asian funding for such big projects as Udokan, a gas pipeline in Pakistan and a refinery in Uganda, Chief Executive Officer Sergey Chemezov told TASS.

"So far we don’t need big funds, we’ve got sufficient local (funds), which we receive by using local capital market and raising the money flow generated by Rostec holdings. Besides, Russian investors are interested in our enterprises. If we speak about global projects we’ll turn to Chinese or Indian partners. This concerns massive projects, such as Udokan, or the construction of a gas pipeline in Pakistan, or a refinery in Uganda where foreign investments will be used," he said, adding that "there’ve already been some preliminary contacts."

In February 2015, Rostec entered a consortium to construct the first oil refinery in Uganda. The company holds a 60% share in the consortium while the country’s government has a 40% stake.

The project is worth a total of $4.7 bln. The launch of the first stage with a daily projected capacity of 30,000 barrels per day is slated for 2021, and by 2026 the capacity is expected to be boosted to 60,000 barrels per day (more than 3 mln tonnes of oil per year).

Rostec plans to sell stakes in Russian Helicopters and KRET (Concern Radio-Electronic Technologies) in 2016, Chemezov also said.

"A decision has already been made to sell stakes in Russian Helicopters and KRET. Since those are defense companies Rostec will clearly keep controlling stakes. We’ve been allowed to sell 49% stakes in both holdings to any investors by the leadership of the country," he said.

According to Chemezov, Rostec will not sell a 49% stake in Russian Helicopters all at once now amidst a complicated market situation. However, he added, "we can sell a 49% stake in KRET."

"Currently we’re conducting an assessment of assets. As soon as the assessment is over we will announce a tendering procedure and will consider all bids," CEO said.

Potential investors may simultaneously be strategists, Chemezov said, adding that "then not only will they provide us with money but also with core competencies and technologies, and will make high-tech markets accessible, which is prior to us." Also, he said, a portfolio investor could participate though it will be passively participating in management.

KRET unites more than 95 enterprises and organizations engaged in the development and production of military and civil radio-electronic products. The company produces a wide range of products in avionics, operational and tactical systems; electronic warfare and intelligence equipment; friend-or-foe identification systems and equipment; special measuring instrumentation; plugs, electric connectors, and cable products.

Russian Helicopters is the sole Russian rotorcraft designer and manufacturer with the capability to design, manufacture, service and test modern civilian and military helicopters. The company includes design bureaus, helicopter assembly plants, components production, maintenance and repair enterprises, aircraft repair plants, and helicopter service companies providing after-sales support in Russia and abroad.

Third party investors will help the company raise capital in order to carry out its development plan, CEO said. He added that the holding is setting the task to become one of the world’s five biggest corporations. "It’s necessary to upgrade enterprises and holdings to a decent level, which would trigger interest to them on the market, and then some of the companies could gradually be sold to investors, acting through both big core business and financial structures and private investments," Chemezov said.

Russia’s state hi-tech corporation plans an annual revenue growth of 17%, Rostec CEO said. 

The company plans to increase the share of civil products in the revenue up to 50% or more in 2020, Chemezov added.

"Let's just say, in absolute terms, we are not planning reductions. In relative terms - yes, as we plan to significantly increase a share of civil production, and increase revenue from sales of defense products due to increasing exports, which will allow neutralizing decline of domestic market sales. Today, the share of military products is about 70%. The share of civil production - 28%. This is not enough. We need to take measures to ensure that this share increases. Our task is to bring the level up to 50% in 2020, and some companies are already trying to do that," he explained.

Rostec plans to set up a bank as a successor of Novikombank (part of the corporation) for financing industrial projects, Chemezov told TASS, adding that after taking over other assets the bank could hit top ten biggest Russian lenders.

Novikombank, founded in 1993, is a modern technology-intensive Russian bank with its loan book exceeding 100 bln rubles. Currently, it ranks among top 40 Russian lenders in terms of assets. The bank became part of the state corporation in 2011, and similar to the parent company it has been placed under western sanctions, which blocked access to western capital markets.

"A decision has been made to recapitalize Novikombank. We plan to merge with a number of other banks over the long term in order to form a large industrial bank," Chemezov said.

A number of prominent Russian businessmen, among them the owner of Rusal Oleg Deripaska, has publicly complained about lack of competition in Russia’s banking sector, which has only two dominating state-owned lenders - Sberbank and VTB. According to businessmen, lack of competition pushes interest rates for enterprises up.

Rostec was set up in 2007 for consolidation of state assets in civil and defense industry. The company said earlier that anti-Russian sanctions urged the need to recapitalize Novikombank as many local industrial companies were served by the financial organization. Currently, Rostec comprises 664 enterprises.

According to Chemezov, Novikombank is expected to hit top ten lenders in Russia after taking over other banking assets and creating a bank for financing industrial projects.

"This consolidation will increase our assets so that our bank could eventually at least hit top ten biggest lenders in the country," he said

Chemezov added that Rostec had received the Central Bank’s prior consent to set up a specialized bank for financing industrial projects.

"The Central Bank welcomes the idea. I’ve met the Central Bank’s Chief Elvira Nabiullina to discuss the issue. She welcomes our decision," he said.

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