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Comment of Elena Sakhnova, Head of Industrials, Transportation, Materials at VTB Capital, for Financial Times

28 October 2011
Russia's richest man buys freight rail stake

28.10.2011

By Courtney Weaver in Moscow (Financial Times)

Vladimir Lisin, widely considered Russia's richest man, will become the largest performer in Russia's rail freight market by buying 75 per cent of Russian Railways' freight subsidiary for $4.2bn (£2.6bn). Mr Lisin is poised to take over one-fifth of Russia's rail wagons after beating rival tycoon Gennady Timchenko in an auction for control of Freight One. The sale is a landmark for the state-owned rail sector and is expected to fuel a new wave of consolidation in the industry as control shifts from Russian Railways to private operators.

The starting auction price was $4bn and representatives for Mr Lisin said that the tycoon had won on his first bid. It is unclear how Mr Timchenko bid in the auction. The tycoon, who has known Vladimir Putin, prime minister, since the 1990s and cofounded a judo club where Mr Putin serves as president, is a co-owner of Gunvor, the oil trader, and Transoil, a rail carrier. The private placement is seen as a litmus test for a series of Russian Railways assets that are set to be privatised over the next few years, and for the state's overall privatisation programme, which is estimated to raise $32bn. One executive in the industry who was not involved in the auction called the sale a "milestone" for the sector. 
"This is one more demonstration railway reform goes ahead irrespective of some resistance, especially from the side of senior management of Russian Railways," he said. The group, which will use the Freight One sale proceeds to update infrastructure, has fought criticism that it is dragging its feet with privatisation. ElenaSakhnova, an analyst at VTB Capital, said Freight One's privatisation would increase competition between the group and rivals such as Globaltrans and lead to smaller players being consolidated. The deal, she said, could make Mr Lisin's existing transport business, which has $2bn in assets, the most profitable in the industry. Hours after the sale, an investment company in which Mr Timchenko is a co-shareholder announced it had acquired half of Russian petrochemical company Sibur for an undisclosed amount. Owner Gazprom Bank last December valued the company, which reprocesses more than the half of the country's petroleum gas, at $7.4bn excluding debts. Mr Timchenko's partner in the purchase is Leonid Mikhelson, head of the Novatek gas group, who already owns the other half of Sibur.

Mr Mikhelson owns 57.5 per cent of the investment company, with Mr Timchenko owning 37.5 per cent. A representative for Mr Timchenko said he did not believe the Sibur acquisition had any impact on how Mr Timchenko had bid in the Freight One auction.

Steely ambition 
Originally a mining mechanic, Vladimir Lisin rose to become a steel magnate worth an estimated $24bn, with Forbes ranking him at the top of its Russia rich list for the past two years. After starting out in Trans-World Group, an aluminium and steel exporter, the businessman rose to become the majority owner of the now London-listed Novolipetsk Steel, one of the largest steel companies in Russia, Before the Freight One sale, Mr Lisin owned $2bn of existing assets in the transport sector, including shipping companies, sea ports and a rail freight company. An avid shooter, he also boasts one of Europe's largest shooting range complexes at a lodge he owns close to Moscow.


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