Why Filaret Galchev's wealth collapsed from $5.6 billion to $305 million in 1.5 years

The owner of Eurocement Group has been developing on credit all his life, despite the crisis.
About the relationship of the main owner and Chairman of the Board of Directors "Eurocement Group" Filaret Galchev bankers walking is such a story. It was not on one of the credit committee of Sberbank during the discussion of debt "Eurocement". Businessman wanted to fly into space and studied at the Cosmonaut Training Center. Sberbank President German Gref allegedly immediately called the leaders of the Russian Space Agency with a request to leave Galchev in the world, because "he has a lot of problems here." Sberbank's representative has not confirmed the fact of the call Gref in Roskosmos. His colleague of the Cosmonaut Training Center did not comment on it. "I heard that lenders are accessed over Galchev, but does not guarantee that he Gref called," - said the employee of the center. According to another employee, Galchev really trained, but now in the list of space tourists does not appear.

Whatever it was, to solve the problem with Sberbank managed: restructured loan on favorable terms. But this is half of the total debt of the company.

Exactly 11 years ago, consolidating cemntnye plants in central Russia, Galchev had planned to take the lead in the global market and, apparently, was on the right track. "Eurocement Group" has entered into the top 10 world producers (excluding China), and he became a shareholder in the world's largest cement company LafargeHolcim. But in just 1.5 years, he lost most of his fortune:. If in the middle of 2014 Bloomberg Billionaires Index estimated it at $ 5.6 billion, but now - in the $ 305 million Why?

Big hopes

Galchev businessman history began in 1996 when he, along with George Krasnyansky created "Rosuglesbyt", soon became one of the leading coal traders in the country. In 2000 Galchev, together with the former Minister of Fuel and Power Sergei Generalov took part in the privatization of the Krasnoyarsk Coal company. It seemed at the time bankrupt: 1 ton of coal sold for 34 rubles. at a cost of 42 rubles., the workers have not been paid for eight months, payable to budgets of all levels amounted to about 5 billion rubles. "Already in the second month, we pay off debts on wages in 2001 paid 1.8 billion rubles. taxes, increased production capacity from 28 million to 37ln t "- boasted Galchev" Vedomosti ".

Two years later Galchev sold the stake in "Krasugol" MDM group and then using the conflict between the shareholders of the acquired shares, "Stern-cement", owned then four cement plants. "In 2002, 1 ton of cement in Russia was worth $ 30, while in Europe - 60-70 euros. Galchev seen in this industry a great potential ", - explains the interest of the former coal magnate to the cement industry of his friend.

Only it was necessary to restore order. "Stern-cement", according Galchev, possessed in each of the four factories minority stakes, the other numbers in the offshore. Sami plants have been "killed", the revenue called profit, do not pay taxes, all the cash carried in suitcases. "Nobody never dreamed how much dirt was around these plants," - recalled Galchev. However, the founder of "Stern-cement" Vladimir Sternfeld refuted this information. Just as the amount of the transaction called Galchev -. $ 100 million Former colleagues "Eurocement" owner believe it was about $ 50 million later bought additional Galchev.It has three factories, and in 2004 it produced cement holding has 9.6 million tons of products.

In 2005, the businessman concluded a major deal of his life. He has got at "Inteko" wife of then-Moscow Mayor Yuri Luzhkov, Elena Baturina seven cement plants which produced during the previous year to 7.5 million tons of products, and has become the undisputed leader in the industry.

To market the deal came as a surprise. Moreover, in the investment memorandum "Inteko" for 2005 was set the goal - to become a par with "Eurocement". But the race is expensive: the two largest cement companies competed primarily in the price, so she did not rise for several years, factories were operating at the minimum profitability, and this restricted the development of the market, says one of the participants in the transaction. "It was clear that the need to consolidate," - he adds. Exit combat Baturina decided, but it cost dearly Galchev. The deal amounted to $ 850 million.

The deal "Eurocement" to "Inteko" fully financed by Sberbank. Galchev generally preferred to develop on credit money. To the question "of the Vedasomostey ", where he will take money to implement its ambitious plans, the businessman replied," I have a good credit history. "

In December 2005 Galchev bought "Kavkazcement" in-law of the former head of Karachay-Cherkessia Ali Kaitova. Baturina previously refused this transaction. Kaitov was arrested in October 2004 after his dacha near Circassian killed seven representatives Himobedineniya them. Tsakhilov headed by the deputy of the republican parliament Rasul Bogatyrev. Later, their charred corpses will find one of the "Kavkazcement" mines. One of the main advantages of Galchev - the ability to take risks, go for broke, said one of its competitors.

The Golden Age of cement

2005-2007 years were the golden age for the Russian cement industry: the construction boom raised prices and major businessmen of the country, inspired by, among other things, and Galchev example, rushed to invest in this business. Galchev himself then saw the future in glowing terms. "World number 1 company Lafarge is worth $ 42 billion and produces 110 million tons will reach such indicators -. Will cost the same," - aboutyasnyal he told "Vedomosti" in 2006

Breaking the leader of the cement industry, "Eurocement Group" has behaved harshly: the company refused to release products without payment, and a month later announced a price increase. When in April 2005 the cement cost 1150 rubles. for 1 ton, in May - is 2000-2100 rubles. In the summer the price of cement in some regions reached 4000-5000 rubles. 1 m. The manufacturer justified the higher prices rise in tariffs for gas and electricity and the need to modernize the plants. "Now wear capacity - 80%, and plants from 45 to 100 years. What then will happen to these plants? <...> If we reduce the price, all cement plants will die "- explained Galchev. Builders have decided that Galchev tries at their own expense to fight off the cost of buying plants, estimated losses and complained to the Federal Antimonopoly Service (FAS). In late 2005, FAS found "Eurocement Group" violator of the antimonopoly law and punished by a fine of 1.9 billion rubles. However, after several months of court proceedings, the FAS has agreed to reduce the fine of more than 7 times, and allowed to "Eurocement" to raise prices.

Until the end of 2006 Galchev bought the plant in Uzbekistan and Ukraine. His empire was already out of the 16 companies with a total capacity of 35 million tonnes (of which to "Eurocement" Russian power accounted for 29.6 million tonnes, while the total capacity in the country is 68 million tons), and the holding company is the eighth among the world's largest producers cement.

Galchev promised to invest in the development of the cement industry in Russia fi $ 6 billion, increasing annual production capacity in the country by more than 9 million tons Although the net profit, and even consolidated revenues "Eurocement" never revealed, revenues of its companies allowed to talk about such investments:. At a cost in 900-1000 rbl. they were selling cement in average 2,500 rubles. for 1 ton.

Price errors

This price increase was the main mistake Galchev, experts and competitors. After that the Russian market is flooded foreign cement, which now was comparable to the cost of "Eurocement" products. In 2008 the import requirement was estimated at 5 million tonnes, while the actual volume of the cement import was about 9 million tons, recallsone of the manufacturers. In addition, the high profitability of the business has attracted new investors to the industry: the plants were built not only specialized players, but also metallurgists Oleg Deripaska and Leo Kvetnoy, creator of LSR Andrey Molchanov, businessman Alisher Usmanov. "Galchev did a great job - consolidated market, improved the quality of cement, is committed to transparency in relations", - says Molchanov. He admits that it is the high price of cement, which is for the LSR had 1 million tons per year, led him to the construction of a cement plant. "When we started to build, the price for 1 ton reached $ 200. However, international experience shows that the players in this market do not own individual factories, "- he explains today. At the end of 2014 Molchanov sold "LSR-cement" Galchev for about 18 billion rubles. excluding debt to VEB, has passed to the buyer.

As a result, according to the calculations of the "Eurocement", since 2008 in Russia it has been invested about $ 10 billion in the creation of 31 million tonnes of new cement capacity of the plant, after which the total production capacity for cement increased by 40% to approximately 103 million tons per year.

But among the leaders in the modernization of structures Galchev not.

The "SM-Pro" rating of investment activity in the Russian cement market, compiled by a consulting company "Eurocement Group" is located on the eighth line: Galchev built in 11 years, only one process line - "Podgorensky cementnik" Voronezh is 2.2 million tons. For comparison, a leader in investment LafargeHolcim built two lines by 3.8 million tons, it completes another 1.5 million tons Located on the 2nd place "Gazmetallproekt" Kvetnoy completely modernize "Novoroscement":. his first line capacity of 2.2 million tons was launched in 2014, the other two by 2.9 million tonnes should be opened in 2018

Now "Eurocement" forced to cut power: he closed Savinskiy cement plant (capacity - 1.2 million tons), reduced the staff at the "Zhiguli building materials" (1.7 million tonnes) and the Belgorod cement plant. "Pikalevo cement" - part of the Pikalevo industrial complex, in a situation where seven years ago came to understand President Vladimir Putin - now translated into a two-hour working day, his Persiancash halved. Why "Eurocement", the industry leader, was among the outsiders on investment?

Dear ambition

Money in "Eurocement" were. EBITDA «Eurocement Group" in 2006 was $ 600-700 million, in 2007 - already $ 1.7 billion, said a person close to the company. But Galchev who wants to become the largest cement producer in the world, decided to assemble a blocking stake in the global industry leader - the company Holcim. To this end, the company did not have enough funds, re-needed loans. His business partner George Krasnyansky, who owned a blocking stake "Eurocement", this idea did not approve, he tells a familiar business. Krasnyansky insisted on modernization and construction of new plants, Galchev believed that it is necessary to acquire the assets, said one of their friends. In 2006, in "Eurocement Group" option program was launched, the scope of the share Krasnyansky: Company managers received 4.8% of the shares, including President Mikhail Skorokhod companies - 1.5%. Krasnyansky package was reduced to 23.8%.

In 2008, the company Galchev Eurocement Holding AG, registered in Zurich, said it boughtand 6.52% market share Holcim, and in 2011 this percentage increased to 10.11%. The package would cost about $ 2.3 billion.

Other co-owners of Holcim Galchev were not happy. FT wrote that the Russian businessman "ice" relationship with the major shareholders of the Holcim, Schmidheiny family, which took hostile attempts Galchev to increase stake in the company. Since July 2013 Holcim start to negotiate a merger with another major producer of cement - Lafarge. Transaction liked family Schmidheiny also because eroded share Galchev, wrote the FT. As a result of the merger Galchev received a new cement giant LafargeHolcim 6,12%.

In 2008, the crisis broke out and since then the market has not recovered, says CEO of the company "SM-Pro" Vladimir Guz. During 2015 cement consumption decreased by 12% to 62 million tonnes - because of this, most of the plants uploaded by 60%. The dollar price of cement has fallen by more than 3 times: from $ 178 per 1 ton to $ 55, still Guz. "The profitability of the cement industry is now on the verge: for a few years after the fall of the price marked time in 2008, while the production cost is steadily growing, growing and growing to be - higherare tariffs for energy, transportation, etc. "-.. agrees to the general director of holding company" BaselCement "Vyacheslav Shmatov.

Galchev continues to lead the production: the "Eurocement" is now 19 cement plants in Russia, Ukraine and Uzbekistan, as well as plants for the production of concrete, reinforced concrete, quarries and non-metallic materials. However, only five of its plants ( "LSR-cement", "Podgorensky cementnik", "Mordovcement" Sengileevskaya cement plant and "Nevyanskiy cementnik") can be attributed to the current working on a so-called dry method of production. On average, the cost of cement production in "Eurocement" estimated in 1800 rubles. (Without the administrative and investment costs). Cost of cement production by dry method in modern factories competitors by 20-30% below said Guz. According to estimates, "Pro-CM" for every ton of cement sold - at a price of about 2900 rubles. - Lays down an additional minimum of 900 rubles. interest on loans, and about 800 rub. costs to sell. It turns out that the final cost per ton for "Evrotsementa "is 3500 rubles., t. e. its sales team loses 600 rubles., according to experts" CM-Pro. "

In the cement business, "Eurocement" today is more an outsider and inferior to other market leaders at cost, profitability, capacity utilization, development dynamics and the level of modernization, is convinced one of Galchev competitors. To this we must add the special management style, characterized by a high dependence on the position of the company owner, and her "family" character: among the top managers a lot Galchev relatives - such as security vice president Kuzma Grigoriadis and Vice-President Romeo Galchev, adds the source "Vedomosti". The mistake was the underestimation of the investment potential of the sector, which led to the emergence of competitors in the home "Eurocement" market, he continues.
Loans crushed

For problems with efficiency predictably followed with credit problems. Russian legal entities Total debt "Eurocement Group" exceed 150 billion rubles., Calculated the "CM-Pro." Employees of banks - lenders GalchevEva said that the total amount of debt a businessman reaches 300 billion rubles. Only half of them - $ 2-2.5 billion - accounted for Sberbank. According to "SPARK-Interfax", most of the factories "Eurocement Group" lies in the Savings Bank. Late last year, the company restructured its debt to Sberbank in 2016-2017 gg. "Eurocement" extinguishes only half percent (the rest are capitalized to the amount of the debt), and in 2018 begins to repay the loan the body. The representative of "Sberbank CIB» declined to comment.

Galchev have a good relationship with Gref, says an acquaintance of the owner "Eurocement". Rarely who manage under such conditions to restructure bad debts, continues the source "Vedomosti". In addition to the Savings Bank of the "Eurocement" debts to VTB and "UniCredit Bank". According to various sources, the first bank group has about $ 500 million, the second - $ 200 million. VTB press service calls "Eurocement Group" in good faith by the borrower, in the "UniCredit Bank" declined to comment on the relationship with the borrower.

At the end of January 2016 Eurocement Holding AG had to bla sell "Sberbank CIB» transaction repo 6.12% stake LafargeHolcim because of the need to increase security for the loan Bank of America Merrill Lynch, provided Eurocement. Already in the beginning of February, Sberbank announced a margin call on the loan and sold the shares for about $ 1.5 billion, while at the time of repo package valued at $ 1.6 billion. Given that LafargeHolcim share price has fallen by more than 40% over the last six months just to deal Galchev could lose about $ 700 million, calculated Guz.

With Ukrainian factories "Eurocement", too, all difficult. Previously they worked for clinker exported from Russia, and now are, says an acquaintance Galchev.
Future plans

The easiest way out of the crisis Galchev - to try to monopolize the market, the feared one of his competitors. And for good reason. Galchev in January addressed to the head of the FAS Igor Artemyev, the proposal to increase the cost of cement rail over a distance of 720 km in 5 times. He justifies the idea of ​​using the inefficiency of the railway infrastructure is now being taken to cement the distance more than 2000 km, which prevents local players,asskazali few people who know about the content of the treatment.

"A case in point is not about supporting the sector and support for a particular player. From this tariff benefit plants "Eurocement Group". confident CEO "Baselcement" Maxim Volkov - regional monopolies where other players will not be able to go ", will be created. In this case, for consumers, for example, in Apatity where "Bazeltsement 'carries the output of 1,126 km, the cement will rise by more than 50% indicates Volkov. In regions with low production of cement price increases it will significantly increase the cost of construction, and in regions with excessive amounts of the profitability of cement manufacturers significantly reduced, which will lead to the closure of production, loss of jobs, and dismissal of staff, said a representative of "Metalloinvest" (50% of it Usmanov owns). This is especially critical for single-industry towns, he said. These include, for example, refers Novotroitsk where Usmanov owned cement producer - OOO "South Urals Mining and processing company" - is abouttion of the alternatives city-forming "Ural Steel" (part of "Metalloinvest"). "Localization of the market due to increased logistics costs will lead to a regional monopoly and, consequently, to an increase in the price of cement," - summarizes the representative of the "Metalloinvest".

The FAS has rejected the offer of "Eurocement", said the representative of the service: "It restricts competition - see the risks and disadvantages, but the advantages are not so obvious." Offer "Eurocement Group" is to make cement regional product, and it will change the configuration of the market: for example, in "Eurocement" in CFD share exceeds 50%, he says. In addition, the FAS previously coordinated the deal "Eurocement" on the acquisition of competitors provided that the market is highly competitive. If Galchev will continue to insist and lobby for the idea of ​​localization markets, it will be interpreted as an attempt to monopolization and state may reconsider its decisions on the approval of recent acquisitions businessman, says federal official.

In spite of the strategic mistakesGenerally Galchev still moving towards its main goal, said Guz. The company is forced to continue to expand, otherwise it will lose its dominant position in all regional markets. "If the volume of the market is not prosyadet below 45-50 million tonnes at a passive position of other producers and loyalty of bankers," Eurocement "will be able to hold out. On the other hand, if the current situation will last 3-5 years, Galchev may lose control of the business ", - said Guz.

"The main cement consumption - residential construction. Therefore, the demand will increase when real incomes start to rise again, and mortgage rates - fall. In the meantime, these lines are quite the opposite and, as a pair of scissors cut the market. This year will likely decrease the capacity of the market and competition, respectively, will be tougher, "- said Shmatov of" Baselcement ".

The representative of "Eurocement group" refused to answer questions "Vedomosti".