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Ukrainian scrap metal collectors acquired the largest steelworks in the Baltic region

Ukrainian scrap metal collectors acquired the largest steelworks in the Baltic region
At home, he was just an "iron garbage"
Photo: Reuters

The KVV Group (Kyiv) acquired the Latvian metallurgical plant Liepajas Metalurgs, said Administrator for Bankruptcy Affairs of the enterprise Harald Velmers at the yesterday’s meeting of the government of Latvia. The agreement will be signed at the end of September.

Of the two potential buyers - KVV Group and United Group (owned by Russian businessman Igor Shamis) – the decision was made in favor of the Ukrainian company, which offered to buy the main production facility for €107 mn. According to Velmers, bids were equal in price, but in this situation the terms of payment and provision of fulfillment of obligations to creditors were the key factors. The price offered by the Ukrainian buyer covers a significant part of the creditors’ claims. Also, the Ukrainian side made it clear that the operation of the company will be resumed later this year.

In July 2013, the state paid off the € 67.4 mn loan of Liepājas Metalurgsv to Italian UniCredit. When the shareholders of the company failed to find the money for further development of the steel mill, they started looking for a new investor. In November 2013, after unsuccessful search for investors, the court found the company insolvent.

The KVV Group promises to pay the amount of the transaction within 10 years after payment of a “significant first installment”, said Karlis Krastiņš, Head of Prudentia, which consulted the deal. He also said the Ukrainian investor offered corporate guarantees from the parent company, bank guarantees, a pledge of assets and confirmed that it was not linked to the former shareholders of Liepajas Metalurgs. Earlier Krastiņš said that resumption of production will require €50 – 60 mn. In a conversation with Capital, Krastiņš said that yesterday the parties signed a preliminary agreement on payment of cash collateral.

Acquisition

Liepājas Metalurgs is the largest industrial enterprise in Latvia and in fact the only metallurgical enterprise in the Baltics. The plant offers products made of low carbon and low alloy steel, including reinforcement steel, long products, drawn wires, nails and casting products used in road construction and for the production of building materials. In 2011, the company launched a furnace workshop equipped with a modern electric arc furnace. In 2012, the production of new electric furnaces has reached the design level at approximately 850,000 t per year.

Buyer

The KVV Group was established in October 2010. Its principal owner is the British company Gefest Investments Limited. The group has a network of facilities for bending and cutting of ferrous scrap metal. It previously supplied significant amounts of raw materials to the Ilyich Steelworks and Zaporizhstal in Ukraine. The company belongs to Ukrainian entrepreneurs Valeriy Kryshtal and Yevheniy Kazmin. It owns a number of stations for receiving scrap metal, in particular, in Sevastopol and the Kyiv, Zaporizhzhya, Chernihiv, Cherkasy, Sumy and Khmelnytsky oblasts. Experts estimate that in 2013 the KVV Group collected approximately 250,000 t of scrap metal.

Yesterday, the KVV Group did not provide Capital any information about the new deal, referring to preparation of the official press release, which will be issued at a later date. Oleh Malskiy, a partner at the AstapovLawyers Firm, which represents the interests of the KVV Group, said in a conversation with Capital: “The KVV Group specializes in scrap metal and construction and processing is required for integration”.

Assessment

The deal is a positive signal for the further development of the company given the closed nature of the scrap metal export market, according to industry experts. Head of the Marketing Department at Ukrpromvneshekspertyz Yuriy Dobrovolskiy says today scrap metal export is done within the quotas given by the commission of the Ministry of Economic Development. Notably, the KVV Group is not one of the companies that was granted access to export.

Dobrovolskiy says these days the demand for scrap metal in Ukraine is in decline. The expert says the price has already decreased from UAH 3,100 per 1 t to UAH 2,950 and further reduction may have a negative impact on the profits of suppliers of raw materials. “For the KVV Group the steel mill in Latvia is a kind of a guarantee of the purchase of raw materials,” believes Dobrovolskiy.

Analyst at the EavexCapital Investment Company Ivan Dzvinka says the deal allows the company to create a vertically integrated enterprise, which will control the entire production chain from procurement of raw materials to manufacture of products. However, Krastiņš said in a conversation with Capital that the raw materials to the Latvian factory will be delivered by local scrap metal procurement companies as earlier, as it is quite expensive to deliver scrap metal from Ukraine.

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