EBRD refuses to bake

The European Bank for Reconstruction and Development (EBRD), which stopped working in the Russian Federation after the outbreak of hostilities in Ukraine, is withdrawing from the latest projects in the food industry. The bank may sell 30% of Khlebprom, a large confectionery manufacturer, to the structure of the company’s main owners, including Alexander Ryazanov, former deputy chairman of the board of Gazprom. Meanwhile, the production of sweets in the Russian Federation is declining, and demand is shifting towards inexpensive products.

The fact that the EBRD may withdraw from the capital of the large confectionery manufacturer Khlebprom, Kommersant learned from the base of decisions of the Federal Antimonopoly Service. There appeared a notification about the application of the Austrian Akrin Holding GmbH for a preliminary consent to the purchase of 29.43% in the parent structure of Khlebprom, MCOOO Raycroft Limited. This share corresponds to the size of the EBRD package, which the bank received in 2011 by investing € 10 million. More than 70.5% of Raycroft Limited is owned by the Cypriot Vitalworld Ltd, 45.4% of which is owned by the former deputy chairman of the board of Gazprom Alexander Ryazanov and Sergey Zaremba, follows from the reporting of MKOOO. The EBRD and Khlebprom did not provide any comments on Sunday.

Akrin Holding is probably connected with the main owners of Khlebprom. The materials of the arbitration court say that Akrin Holding owns JSC Russian Holding Company (RHC), the head of the board of directors of which was called Alexander Ryazanov in the media. RHC General Director Natalia Mikhan also heads Meridian LLC, Meridian-Service LLC, Nerud-M LLC, co-owned by Mr. Ryazanov.

After the outbreak of hostilities in Ukraine, the EBRD announced the closure of offices in Moscow and Minsk, as well as the exclusion of the Russian Federation and Belarus from financing. Khlebprom may be one of the bank’s last assets in the Russian food industry. In the register of EBRD projects in the Russian Federation in the sector, most transactions have the status of completed or canceled, Khlebprom has the status of “payment”.

Dmitry Gabyshev, managing director of Peregrine Capital, notes that the EBRD’s withdrawal from Khlebprom will require permission from a government commission. According to the new rules, the buyout price should be no more than 50% of the market value established during the assessment, he clarifies. In addition, adds Mr. Gabyshev, you can choose to defer payment for the buyer or pay a contribution to the budget of 10% of the transaction price.

According to the managing partner of Walnut Capital, Artem Motorny, the EBRD, when selling a stake, can return investments in Khlebprom and receive income, since the valuation of the business has grown significantly since 2011. For Khlebprom, the exit of a financial investor is unlikely to be a negative factor, given the good pace of development in recent years, including entering new segments such as donuts, Mr. Motorny adds.

As the Askond Association of Confectionery Industry Enterprises noted, the production of confectionery products in the Russian Federation in 2022 should remain at the level of 2021, but logistical difficulties with exports may affect the volumes. According to Rosstat, in January-November 2022, the output of confectionery products decreased by 2.5% year-on-year, to 3.6 million tons. President of the Russian Guild of Bakers and Confectioners Yuri Katsnelson adds that competition in the confectionery market remains high, and demand is shifting towards less expensive products.

Anatoly Kostyrev