Market in exchange for technologies

15.03.2010 (13:15)

A contract to sell 25% stake in Transmashholding (TMH) to the French company Alstom has been signed recently, in presence of Nicolas Sarkozy, President of France, and Dmitry Medvedev, President of Russia. Thus, the French company has gained an access to Russian market, which is among the most capacious railway engineering markets in the world, and the gigantic national holding group receives a support for modernisation of its plants and intellectual developments of the world-famous rolling stock manufacturer.

The first information about the transaction appeared last spring, and since then it has not been changed considerably. According to the agreement, Alstom will acquire a stake (25% plus 1 share) in the capital of the TMH 's parent company, the Dutch Breakers Investments, which is a 100% owner of Transmashholding. Before the sale, 75% minus 1 share in Breakers had belonged to organisations of Kuzbassrazrezugol owners, Iskander Makhmudov and Andrei Bokarev (Chairman of the TMH Board), and to the shareholders of the railway operator TransGroup AS. A blocking stake in this holding belongs to RZD, and it is not going to sell this share. Now, as a result of the transaction, the share of Makhmudov and Bokarev will be 50% minus 2 shares. "It will take three years to finalise this transaction, and its average price is to be not less than € 250 million," said Mr Bokarev at the signing ceremony. "If the average price becomes smaller than this amount, we have the right to abandon this deal.

"The criteria for the asset value creation have not been changed either. Thus, it was decided a year ago, that their prices will be determined taking into consideration TMH's financial results from 2008 to 2011. This will help the company to avoid too low final price. The matter is that the amount of the transaction is not disclosed, and when the memorandum between TMH and Alstom was signed (in April, 2009), Ernst & Young estimated Transmashholding at RUR 71 billion. However, it is worth considering that this assessment was made in 2008, and since then, for the well-known economic reasons, the holding's assets could become much cheaper. Thus, the three-year term will give an opportunity to this company to show its most lucrative financial sides. Anyway, no matter what the evaluation is going to be as a result, Alstom will make a $ 75 million advance payment after due diligence is finalised, and the remaining amount will be paid to Russia's companies in 2012.

We would like to emphasise that the agreement signed by Alstom will provide technological and methodological support to the modernisation of the production processes at TMH's enterprises. An Alstom representative has been appointed a Deputy Director General of TMH. He will supervise internal activities in the company. A group of French experts in production, construction, human resource policy and financial control are starting work in the holding company together with him. Also, the parties have already established a joint engineering venture in Russia, Rail Transport Technologies. It will create centres for designing and manufacturing railway equipment and key components, using the Alstom Transport's and TMH's know-how. "This Engineering Center is already designing a new Dual-passenger electric locomotive EP20, which is to work at a speed up to 200 kph. "We shall continue to produce a series of new Russian various purpose electric locomotives on the basis of this engine," they noted in TMH.

We would like to remind readers that in 2008 and 2009 Alstom was engaged in technical and economic audit of TMH enterprises, and made a conclusion that the cooperation with this company is promising. A preliminary technological interaction stage started in March 2008. It allowed to work out a plan for future modernisation of the following three TMH's companies: Bryansk Engineering Plant, Demikhovsky Engineering Plant and Tsentrosvarmash in Tver. This work will be carried out at other nine TMH's plants too. Also, the Competence Centres will be created in Russia to develop new products based on both parties' know-how. It is expected that the localisation of production will be at least 75-80% at the first stage, and in future it will be growing to 100%. According to representatives from companies of the new alliance, the partners are going to continue cooperation in the production of double-deck passenger coaches, starting from October 2008.

Market experts recognise that although the domestic engineering is less advanced technologically than it is worldwide, still the transaction is beneficial for all partners. "Alstom's benefit is that Russia's market is quite interesting, even in the crisis. After all, despite the cuts in its investment, RZD is still thinking of buying rolling stock in large enough quantities (except for freight cars). The main reason is big depreciation, which makes RZD update its fleet even in crisis," says Oleg Trudov, Deputy General Director of the Institute of Natural Monopolies.

Experts from the European engineering sector agree with him: "When orders from major rolling stock customers decline, all companies make attempts to expand their markets. It is especially relevant in our case, when we speak about a very capacious and promising market, which is currently operating the past century technical units, and where new production is offered by only Russian manufacturers, which are far behind the modern worldwide standards," he said.

Maria Shevchenko