The service fears that, as a result, TMK’s share in this market segment will exceed 50%, and now the company controls over 35%. The interlocutors of “Kommersant” do not exclude that the company will continue its attempts to acquire an asset, analysts call it “interesting, but niche.”
TMK Dmitry Pumpyansky (65% of the shares) planned to buy out the Tekhnomash plant for the production of drill pipes in Nevyansk, Sverdlovsk Region, with a capacity of 32 thousand tons per year from the Chinese Hilong Group, according to the FAS report. TMK submitted an application at the end of May, but the service refused, motivating it by the fact that the company now occupies over 35% of the drill pipe market in the Russian Federation, and with the acquisition of Tekhnomash (through Drilling Technology LLC, which the plant should contribute) will exceed 50%, which will lead to restriction of competition. At the same time, the Federal Antimonopoly Service approved the acquisition of Hilong in the Russian Federation, TD Khilon-Rus, Technology Coating LLC at Samotlor, which in February 2018 created TMK.
The Hilong Group was established in 2002 and owns drill pipe production plants in Shanghai (40 thousand tons per year), Abu Dhabi (18 thousand tons) and Nevyansk, as well as other oilfield services assets. Hilong's revenue in 2017 amounted to $ 390 million, profit - $ 18 million, to the markets of the Russian Federation, Central Asia and Eastern Europe accounted for 34.1%. The group's revenue from the sale of drill pipes (51 thousand tons) was about $ 145 million, with an average selling price of $ 2.6 thousand per ton. Sales in 2017 have more than doubled due to increased demand in Russia and Central Asia and the strengthening of the brand’s position in these markets, the Hilong report said. Outside China, around 45 thousand tons were sold, sales in the Russian Federation were not disclosed, but Tekhnomash produced 16.5 thousand tons in 2017, having gained 2.5 billion rubles, and TD Khailon-Rus received for the same 2017 revenue of 6.19 billion rubles. (data from Kartoteka.ru). In the first half of 2018, Hilong sold 23.8 thousand tons of drill pipes for $ 62.7 million (about 21.5 thousand tons - outside China), the average sales price remained at the level of $ 2.6 thousand per ton.
TMK’s drill pipes are manufactured by the Sinarsky and Taganrog pipe mills (SinTZ and Tagmet), which they report to call their competitors ChTPZ, as well as pipe manufacturers from Ukraine and China. In 2017, Tagmet produced 18.2 thousand tons of drill pipes (a third less than a year earlier) out of a total of 602 thousand tons, the share of drill pipes was not disclosed by the SCR, the plant produced 627 thousand tons. Oleg Petropavlovsky from BKS estimates TMK’s capacity for drilling pipes at about 40 thousand tons per year, and the entire market in the Russian Federation - about 110 thousand tons.
TMK declined to comment, but it was not possible to contact Hilong representatives yesterday. The interlocutors of “Kommersant” in the industry remind that, despite TMK’s debt load (net debt at the end of June - 3.95 EBITDA) and plans to reduce the debt burden, the company is considering the possibilities of various acquisitions and joint ventures. In 2017, SinTZ entered the capital of the regional Uralchermet dealer; in May, a member of the board of directors of TMK, the head of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin said that TMK is considering the possibility of an alliance with Vallourec.
The interlocutors of “Kommersant” do not exclude that TMK will continue its attempts to acquire the Hilong business in the Russian Federation or create a joint venture with it. For example, only from the third time, UMMC received the approval of the FAS for the consolidation of the Chelyabinsk Zinc Plant. Judging by the financial performance of Tekhnomash, the profitability of sales of its drill pipes is about 22%, and the company's EBITDA margin should be at 25%, says Oleg Petropavlovsky. The asset can be estimated at 4–5 EBITDA, or at 2–2.5 billion rubles. If it comes to a deal, this could be an interesting niche acquisition for TMK, the analyst believes. But the sales market in the Russian Federation is small: based on data from the Federal Anti-Monopoly Service and companies, its volume in money may not exceed 20 billion rubles, adds Mr. Petropavlovsky.