Tire dismantling – Newspaper Kommersant No. 202 (7403) dated 10/29/2022
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Nokian Tires is selling its Russian business to Tatneft for €400 million. The Finnish company’s plant in Vsevolozhsk was Nokian’s largest tire supplier worldwide before this crisis. Given the capacity of the plant, Kommersant’s sources do not see an opportunity for Tatneft to load it, especially in the face of interruptions in the supply of raw materials. At the same time, according to Kommersant’s information, Nokian left the option to return to the Russian business, and in such conditions both companies will be interested at least in maintaining the work of the plant. Tatneft has experience in running the tire business, but withdrew from its assets after the imposition of EU sanctions against them.
Nokian Tires announced the signing of an agreement to sell its Russian business to Tatneft. The price of the transaction without the transfer of debt and cash is expected to be around €400 million, the statement said. The final price will also be affected by other factors, including revenue, working capital adjustments and the exchange rate.
The deal did not come as a surprise – in June 2022 Nokian Tires announced, which initiates a controlled exit from Russia against the backdrop of EU sanctions, which, according to the head of the concern in the Russian Federation, Andrei Pantyukhov, made “further work as part of the concern impossible.” Kommersant reported interest in the Tatneft asset among a number of buyers, including the structures of Roman Trotsenko (see. “Kommersant” dated August 29).
The Nokian Tires plant in Vsevolozhsk (Leningrad region) has been operating since 2005, and in 2021 Russia accounted for 20% of brand sales and 80% of output. The production capacity is 17 million tires per year. In recent years, the entire passenger car tire market has been around 30–40 million units per year. The concern did not suspend the plant in the Russian Federation, but in the spring it began to reorient production to sites in other countries. Now, according to reports, he is increasing production at sites in Finland and the United States. Nokian Tires estimated the impairment of Russian assets in the second quarter at €280.7 million. The value of the tire concern’s net assets in Russia and Belarus, excluding net debt, will tentatively be €480.3 million at the end of the third quarter.
According to Kommersant’s interlocutors, the deal contains a condition for the Finns to buy back the share, and Nokian is interested in the plant continuing to work.
Tatneft has experience in the segment: the company has already produced tires under the Kama Tires brand, but the assets fell under EU sanctions due to alleged supplies for Russian equipment used in military operations in Ukraine. The company was forced to sell the business to Tatneftekhiminvest-holding (Tatarstan owns 49%, other shareholders are unknown).
Kommersant’s source points out that, given the enormous capacity of the plant in Vsevolozhsk, the possibility of loading it looks unrealistic, especially if we are talking about continuing the production of similar products in the face of interruptions in the supply of raw materials. He notes that if Tatneft does not have “non-obvious” projects for export expansion, then the deal is initially conceived as temporary.
“Kommersant” sent questions to the company about what line of tires will be produced at the plant. Kommersant’s sources note that under the deal, Tatneft receives only hardware without software and technology. The interlocutor of Kommersant, close to one of the contenders for the asset, says that just because it is impossible to work in production without the appropriate IT technologies, which are tied to production management and equipment, its price may decrease.
However, other sources of Kommersant consider the choice of Tatneft as a buyer strange, given the potential sanctions risks due to state participation.
Automotive expert Vladimir Bespalov believes that the shareholder structure itself does not bear sanctions risks. At the same time, the Nokian asset itself, with such an assessment and the presence of an option, may be of interest to Tatneft in understanding the sales volumes of products, he continues: “Still, the Russian market cannot provide significant sales in the premium segment where Nokian worked, but perhaps there are understanding of other markets.
The deal will still require approval from the authorities of the Russian Federation. The FAS said they did not receive a petition. According to Kommersant’s interlocutor, the choice of Tatneft as an investor may also be dictated by the fact that it will be easier for a company associated with the state to obtain appropriate approvals. Alexander Gavrilov, managing lawyer of BIRCH LEGAL, says that the issue of settlements for transactions with shares and shares is quite sensitive, a lot depends on the banks involved. “On the one hand, the Russian state insists on keeping funds in the financial circuit of the Russian Federation or on the justification that this is impossible. On the other hand, European banks may impose additional requirements upon receipt of significant amounts from Russia. However, now these are surmountable obstacles,” he notes.
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