Another major foreign investor, American International Paper, is leaving Russia. The company sold 50% in the leader of the Russian timber industry, the Ilim Group, to Russian shareholders for $484 million. But the deal, which is being carried out at a substantial discount, has yet to get the approval of the authorities, who at the end of last year did not agree on the exit of another major international player, the Austrian Mondi. Experts believe that it is unlikely that Ilim will undergo significant changes in strategy after the departure of a foreign partner, but they admit that loans will become more expensive.
The American paper and packaging manufacturer International Paper has agreed to sell its 50% stake in Ilim SA (owns 96.37% in the Ilim group) to its Russian partners Zakhar Smushkin, as well as brothers Boris and Mikhail Zingarevich. The deal amounted to $484 million, which implies a total value of the Ilim Group of $3.5 billion. The company was valued with a multiplier to EBITDA of 3.1 based on the results of 2022 (EBITDA for the year was $1.11 billion) and takes into account net debt of $2.45 billion. The deal is subject to regulatory approval. The Federal Antimonopoly Service told Kommersant that so far they have not received relevant applications from companies. In addition, the message says International Paperthe parties also agreed to buy out the remaining 2.39% stake in the Ilim group for $24 million.
The achievement of agreements on the acquisition of a stake in International Paper "Kommersant" was confirmed by the chairman of the board of directors of the Ilim group, Zakhar Smushkin.
He called the 15-year partnership with the company "one of the most successful examples of the implementation of joint projects in the timber industry." During this time, the volume of production has doubled, and the total value of the company has grown almost three times, the co-owner of the company explained. “We are pleased with the results of joint activities and would like to maintain our effective partnership. But under certain circumstances, our partners made their decision,” he said.
Ilim is the largest timber company in Russia, accounting for 75% of the output of all Russian market pulp, 20% of cardboard and 10% of paper. The group includes three pulp and paper mills, two corrugator plants and the design institute Sibgiprobum. The company's total annual production of pulp and paper products is more than 3.6 million tons. In the first half of 2023, Ilim plans to put into operation a pulp and paper mill with a capacity of 600 thousand tons of finished products per year in Ust-Ilimsk, Irkutsk Region, worth $1.3 billion.
Andrey Frolov, vice-president of the Union of Timber Manufacturers and Exporters of Russia, believes that after the withdrawal of a foreign shareholder who helped raise funds for projects from Western credit organizations, Ilim may face an increase in the rate when applying for loans in Russian banks. In his opinion, it is unlikely that anything will change much in corporate governance, but now it will be easier for Russian shareholders to make decisions that previously could be coordinated with International Paper for a long time.
Analysts of the WhatWood agency agree with this. They believe that it may become more difficult to attract borrowed capital. At the same time, they note that it is unlikely that anything will change in the trading strategy of the company, whose exports have traditionally been focused on China. By 2025, Ilim intends to increase the volume of deliveries there to 2.5 million tons.
Sources of Kommersant in the market explain that after the announcement of the upcoming exit of International Paper, Chinese investors were interested in a stake in Ilim, but negotiations with them did not go beyond the initial stage.
“Other contenders, except for Zakhar Smushkin and his partners in Ilim, de facto could not be, since they had the right of priority to buy out the share of an American company,” says one of Kommersant’s interlocutors.
According to market participants, the price for such an asset is quite low, but given the current realities, when the government commission on foreign investment approves transactions for the withdrawal of foreign companies only at significant discounts, it could hardly be otherwise. Kommersant's sources doubt that the Russian shareholders will have difficulty completing the deal.
However, there is already a precedent for blocking the exit of a foreign investor from the Russian timber business: the Austrian group Mondi at the end of 2022 I could not to sell its key asset in Russia — Mondi Syktyvkar LPK JSC. Buyer for 95 billion rubles. the structures of the owner of Pharmstandard, Viktor Kharitonin, were to become. Now the businessman is completing a deal to buy LLC Kama from Trust Bank, which owns the only plant in Russia for the production of bleached cardboard. With the exit from smaller assets, Mondi had no problems: on December 15, the company entered into an agreement to sell a plant for the production of corrugated cardboard and two plants for the production of consumer flexible materials for 1.6 billion rubles. Russian GOTEK.
Another major deal, already approved by the government commission, became the sale by the American Sylvamo Corporation of its Russian asset, Silvamo Corporation Rus, which operated the Svetogorsk Pulp and Paper Mill (capacity - 720 thousand tons of pulp, paper and cardboard per year). The deal amounted to 24.7 billion rubles. ($420 million), the Russian management acted as the buyer.