Alfa Group refuses business in Russia

Alfa Group Mikhail Fridman is considering the possibility of selling a water operator Rosvodokanal, which owned 15 years, told sources RBC. Uncertainties with tariffs make the risk too high, analysts say.
Origin source
Vodokanaly for sale

About the fact that Alfa Group is considering the sale of Rosvodokanal, RBC told a source close to one of the companies investing in infrastructure projects. According to him, the deadlines and final conditions for a possible deal have not yet been determined, preliminary negotiations are under way. A source in the banking market and a consultant familiar with the terms of the deal, confirmed to RBC that the asset is being prepared for sale and the search for a buyer is in progress. A source familiar with the proposal of Rosvodokanal's shareholders told RBC that several months ago the search for a buyer was launched. "But now the talks have stopped," he said.

Co-owner of Alfa Group and chairman of the board of directors of the management company Rosvodokanal, Herman Khan, declined to comment. The press service of Alfa Bank forwarded the issue to Rosvodokanal. "Today, Rosvodokanal demonstrates stable financial results, so it is not surprising that potential investors may be interested in such an asset. However, today we can confidently say that there are no agreements on the sale of the company, "the press service of the company told RBC.

Analyst "Finam" Alexei Kalachev estimated Rosvodokanal in the amount of about 20 billion rubles. According to him, the sale of the asset in parts is technically possible, but the whole company can be sold more expensive. There are very few projects on the water supply market in which private operators are willing to go, and often the struggle is between Rosvodokanal and Russian Communal Systems (RKS, part of the Renova group of Viktor Vekselberg), said Alexander Guschin, senior analyst of the corporate ratings group ACRA . "A potential buyer will first of all look at Rosvodokanal's portfolio of projects and fixed working conditions. If all this is interesting for the investor, then the deal will be completely marketable, "he said.

The representative of the RCC declined to comment, in the Leader and Eurasian CC, which are also involved in water supply in the regions, did not respond to RBC's requests for interest in Rosvodokanal.

15 years in business

In 2003, the former Soviet trust Orgvodokanal, which has 50 years of experience in design and management of urban water supply systems, on the basis of which Rosvodokanal was established, was bought by Alfa Group for several million dollars, Forbes magazine wrote. The first object that the company received for rent was the Orenburg Vodokanal. Then she became the operator of water utilities in Tver, Barnaul, Omsk, Tyumen, Kaluga, Krasnodar and Voronezh. Now the company is present in six of these regions (it sold "daughters" in Tver and Kaluga), where it serves more than 5 million people.

Rosvodokanal owns more than 5% of the Russian water supply and sanitation market, while private operators account for only 25% of the total water supply market (Rosvodokanal estimates its share of private players at 23%). According to Alfa Group, Rosvodokanal's revenue in 2017 increased by approximately 25%, reaching $ 331 million, and assets amounted to $ 354 million. Annually, in the development of existing networks, the company invests about 2.5 billion rubles, another 1.3 billion rubles billion rubles. spends on planned and emergency repairs. Since 2007, according to the company, regional water utilities have been implementing investment programs for the development and modernization of infrastructure for a total of 49.5 billion rubles.

In the summer of 2017, the general director of Rosvodokanal Anton Mikhalkov called the company's priority task to expand the geography of its presence and triple the number of consumers in the near future. "Our shareholders see in this market very serious prospects. The market is unconsolidated - accordingly, the space for growth is significant. We want to create a national company on the horizon of five or seven years, which will serve about 15 million people, "Mikhalkov told Interfax.

Why "Alfa Group" changed its mind to develop this asset, the interlocutors of RBC do not say. But a source familiar with the group's plans indicates a gradual reduction in the share of Russian assets. After the sale of 25% of TNK-BP in 2013, the shareholders of the group created LetterOne, which deals with investments abroad, in particular, acquired the DEA oil and gas company from the German RWE. Alfa's investment division, A1, sold 40% of the largest turkey producer Evrodon in Russia in 2016, and in April 2017 - one of the largest cinema chains, Formula Kino. Alfa-Bank, Alfa-Bank, retailer X5 Retail Group and mobile operator VimpelCom (part of the global VEON) remain among the largest assets in Russia - they already account for less than half of the state of the largest owner of Alfa Mikhail Fridman, wrote in December 2017 Forbes.

After the sale of TNK-BP, Alfa's shareholders concentrated on the development of foreign assets, and they face more global challenges, said Mikhail Ganelin, an analyst with the Aton investment company. Therefore, they probably do not have a particular interest in developing such small assets as Rosvodokanal, and, in general, increasing their presence in Russia, rather, on the contrary, they only reduce it, he suggested.

Problem Asset

Possibly, the owners of Rosvodokanal made a long-term forecast taking into account the state's policy in the sphere of housing and communal services and tariffs and realized that the risks of this business have become too high and it is increasingly difficult to defend their interests before officials, told the director of Veta expert group Dmitry Zharskiy. Tariffs for water supply are approved by the state every year anew, and there is no guarantee that they will not be frozen, for example, to support the electorate in a difficult time, he said. In addition, according to Zharskiy, because of the continued drop in real incomes for three consecutive years, the prospects for such business have become even more uncertain.

Rosvodokanal's investment program was implemented with the participation of the state and the EBRD, whose Russian projects are now being completed, and it is hardly worth waiting for large government subsidies in the current macroeconomic environment, said Konstantin Bushuev, head of the market analysis department, Broker Opening.

In an interview with RBC in 2015, Khan said that the water supply business should develop with some state support. "We do not come, we do not say: give us this, give us that. We say: create us an environment in which we will compete for concluding concession agreements, "Khan said. But so far in most regions, Rosvodokanal, like other private operators, works under long-term lease agreements. The first concession for him was the Voronezh Vodokanal in 2012, within the framework of which the investment program is implemented for 2.5 billion rubles. until 2019.

However, in other regions Rosvodokanal encountered difficulties with local authorities. For example, in 2010 the governor of the Kaluga region Anatoly Artamonov said that because of the company's activities, the situation with water supply in Kaluga began to deteriorate. The conflict could not be settled, and in 2012 Rosvodokanal had to sell the daughter to the city (the deal was not disclosed).

In 2016, a conflict arose between Rosvodokanal and the government of the Tver region, which also accused the operator of the inadequate condition of the water supply system. In March 2017, the regional governor Igor Rudenya raised the issue of the return of the water canal to the city's ownership. The conflict reached the level of Deputy Prime Minister Dmitry Kozak, who instructed the Ministry of Construction to understand the situation. In February 2018, it became known that the Tver "daughter" of Rosvodokanal was completely transferred to the ownership of the Tver region.