The head of Rusagro — RBC: “We really counted in American money”

CEO and co-owner “Rusagro” Maxim Basov

“Import substitution is a huge success of government policy”

— During the placement, the founder of Rusagro” Vadim Moshkovich has invested in the holding company $99,6 million — $17.5 million how Many came to new investors?

— I maintained its share at 7%, the proportion of Moshkovich will decrease to 71%. In General, we relied on the money of new investors, and they appeared. We have new American funds, including pension. We have a lot of European investors, we counted on American money. Fortunately, they came, but unfortunately, not to the extent which I expected based on encounters. And this means that we have a new story, we have no one to compare, and they are closely watched. I think now they just don’t have enough time and as we develop they will enter our capital.

— What proportion of the total volume of accommodation fell on the new shareholders?

— I think about 40%. It is very high quality investors, we are very happy. We just expected more. But if it’s more, we have chosen: either the price is rising, either the would be expanded. But not yet. Will come.

— Among these 40% of investors many funds that buy securities in Russia?

— Mostly all American funds, is English, is Scandinavian. We returned to the us very dear German friend. Russian money there is almost. First, because all Russian we have anyway sit. Second, the Russians used to cheap stories, and we’re not a cheap company. Russians invest in quick dividends — in “Gazprom”, “Rosneft”. No, Russian money is very small.

— Investors ask you questions about the political situation?

— The last deployment of the Russian company was six months ago. Now I met with investors who have until recently had a ban on investments in Russia. And this ban was lifted: somebody six months ago, someone four months ago. I’m four weeks spent at meetings — the demand is huge. Met including with funds, which is running tens of billions of dollars, but no one Russian paper. But these funds to us so far, unfortunately, not included.

— You say that to the extent in which you wanted to attract investors failed?

— In the United States there are funds, each of which comes to $70 million, $100 million There are very few funds that spetsializiruyutsya on Russia, but a lot of global funds that invest in ideas, in microdegree in commodity markets — these are the funds that we need. This is a huge additional money, and I think they will come sooner or later.

Once such a demand, you have not considered the possibility to increase the amount of accommodation?

— Money we just don’t need anymore.

— And why do you become host if you have a debt equal to only 0.6 EBITDA?

Yes, this is one of the questions we are constantly asked by investors. We have a new strategy: we have discussed how we will continue to grow, despite the fact that import substitution in the meat is almost done. And adopted the strategy of the four elements.

The first is organic growth in four of our existing businesses [sugar, meat, fat and plant divisions]: using brands through expansion of capacity and increased productivity. This is a traditional theme, but it does not give us growth significantly. To rise at times, need three more items. Specific terms I now do not want to call, but they are unimportant.

The second item is a new geography: we recently came to Orel and Kursk due to the purchase of “Razgulyai”, bought the plant in Voronezh. But most importantly in geographic expansion is the far East. After 10 years, the far East, I believe, is for us a key region from the point of view of production. It will more than Russia, more than in Belgorod, — this is a major region, by size of business the far East is comparable to the result of [the whole] group [“Rusagro”] now.

The third direction is new for us business is greenhouses. And the fourth is mergers and acquisitions.

— To implement a new strategy, you are going to increase investment?

— Yes, we will dramatically increase investment. Starting this year we plan to spend at least 20 billion rubles a year. For comparison, in 2015 the volume of investments amounted to 11.4 billion rubles.

Based on the fact that we maintain our dividend policy, which is at least 25% of net profits every six months, we have a shortage of free cash flow. Therefore in the company there was a discussion of whether to Fund this deficit by increasing debt or raise new capital. We have allowed policies that we can increase the net debt to EBITDA level 2. But given the fact that we expected purchases in the next 12 months, the Board decided that excluding purchases of organic net debt should not exceed EBITDA 1. On the basis of the investment plans that we have, I think we will reach this level at the end of this year.

So we saw that in order to move forward and develop, we are in a period of 18 months will need to attract new capital. We calculated that $250 million should be enough, unless some megatokyo. The second objective Vadim Moshkovich put increase free float and liquidity. So we went out to the market.

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— You’re ready for the specific transaction?

— Preparing, but deals close to closing, except for one small, no. Unfortunately, we will be able to buy only the assets which in varying degrees are distressed sometimes shareholders can diverge, sometimes debt is large. Unfortunately, no one sells good assets, all believe in this business. In every industry we are in talks. Vadim [Moshkovich] every single day negotiating.

— We can say that by getting rid of business in real estate, he returned to the management of Rusagro?

— He had more time, and he is very seriously focused on this. As Chairman of the Board of Directors he spends time on a potential transaction.

— But he now spends more time than a year ago?

— Yes, more. But now and more opportunities. Because of sharply reduced state support, almost completely out subsidies to short-term loans. For example, we don’t get much money already.

— Why? Is this some kind of stated policy?

— I want to believe that there is. Generally no, they say that only increasing. But we are for the first quarter was 50 million rubles., in front of us debt on subsidies under a billion rubles.

— You’ve got about 2 billion rubles annually?

— Yes. We stopped paying last year, at the end of the third quarter. And there is a risk that doesn’t pay. As I understand it, the short cut support completely, except for beef and milk. It turns out, the short-term money disappeared altogether from the system. Subsidies on investment credits and subsidies are paid per hectare. As a result, we ceased to take short-term loans for agricultural operations and work entirely on their money. Short-term subsidies have ceased to produce not only the processors of raw materials — oil extraction or sugar refineries, but also to farmers. There is a massive reduction of support. I think it’s a change in government policy. Just not talk about it, unfortunately, or even have to talk, because we all already screaming.

“Rusagro” in numbers

72,4 billion rubles revenues totaled Rusagro” in 2015

2nd place goes to the company for the production of pork in Russia

60 billion rubles plans to invest “Rusagro” in the construction cluster in the far East

594 thousand hectares reached the land Bank of the group in 2015

3rd place is a company in the rating of largest landowners in 2015

$250 million was attracted by the group in the result of the SPO in April 2016

14% is the company’s share of the total production of sugar in Russia

100 hectares is equal to the area of the greenhouse complex, which will be managed by the company in the Tambov region

Receipts in the amount of $17.5 million bought Maxim Basov in the SPO

RUB 33.9 billion of the debt of the Agroholding “Razgulay” bought “Rusagro” in 2015, VEB

Source: company data

— Maybe there’s logic? In poultry, everything is fine with the substitution, in the pig more or less too. Beef, in fact, remained the only problematic segment.

— I’ll be honest, if something is cut, it is necessary to reduce subsidies on short-term loans: companies can afford it. But to us most importantly, the support was equal for all companies: if it is removed as a support tool — clear at all, it will be fairer than the one to give, not give to others. There is no doubt that import substitution in pork and chicken — is a huge success of Russian state policy. In vegetables we now see the same thing. But for milk, I guess, I have no confidence in the feasibility of import substitution that with the current low prices should do in Russia.

Rusagro

Agricultural holding founded by Vadim Moshkovich in 1995. On his site reads about the four main business areas — the production of sugar, meat, oil and crop production. In sugar production, “Rusagro” is represented by six plants in Belgorod and Tambov regions (excluding the join now factories of the holding company “Razgulay”), in the meat — two companies in the same areas (in addition, the construction of capacities in the Primorsky Krai), oil and fat — the three plants in Ekaterinburg, Samara region and Primorye. Also “Rusagro” owns 504 thousand hectares of land on which he grows grain, cereals, sugar beet, fodder; the total capacity of the four elevators — more than 735 thousand tons

The holding company’s revenue in 2015 amounted to 72.4 billion rubles, an increase of 22.5% in comparison with 2014, with net profit of 23.7 billion roubles (plus 17.4 percent). Sugar accounts for about 40% of revenue, in the meat 22%, oils and fats — 21%, growing to 17%.

Buy “Razgulyai”

In 2015 Rusagro raised a loan from Vnesheconombank in the amount of RUB 33.9 billion for the purchase of 19.97% stake in the holding company of Agroholding “Razgulay” and its debt to VEB, as stated in the audited consolidated statements of Ros Agro Plc, head structure “Rusagro”. The loan is taken for 13 years at 1% per annum. In this case, the agricultural holding has placed on Deposit with VEB to 13.9 billion rubles to November 2028 at a rate of 12.84% per annum as collateral for this loan.

The main interest for “Rusagro” was represented by 10 sugar factories “Razgulyai”.

New directions

In the middle of 2014 “Rusagro” has declared that leaves in Primorye, with projects in crop and livestock production. The total investment in the region should reach 60 billion rubles Gazprombank Analyst Daria Snitko said that it declared the largest lump sum investment in the agricultural sector, the previous record was from “agribusiness” — 24 billion rubles in the project for the production of beef.

In March 2016 the Board of Directors of “Rusagro” has decided to begin construction of the greenhouse complex in Tambov region with an area of 100 hectares.

IPO and SPO

In the spring of 2010, Rusagro planned to spend IPO at the Russian stock exchanges and to sell a 20% stake for $million 245-309 the Entire company was then valued at $1,07–1,35 billion But after the closure of the order book Rusagro has reported about the failure of the transaction. As wrote the newspaper “Vedomosti”, expected oversubscription happens, moreover, investors wanted a 15 percent discount.

In April 2011 Ros Agro Plc head still held an IPO on the London stock exchange with a placing of global Depositary receipts for shares (the GDR; one share corresponds to five receipts) by $330 million the Company then valued at $1.8 billion.

At the end of April 2016 Ros Agro Plc sold additional shares, placing of 16.7 million GDR at the price of $15 per receipt: in the end of the holding has generated around $250 million Receipts, totaling about $99,6 million was acquired by Shiny Property Limited, the beneficiary of which is itself Moshkovich, said in a statement. Receipts in the amount of about $17.5 million bought Bass. The free float was about 20.7% of the capital, earlier, the free float amounted to 16.3 per cent.

“We believe that no embargo will not be”

— You said that the money raised during the additional share issue will be directed in particular to Finance greenhouse project in the Tambov region. Initially you said that the construction of 100 ha of greenhouses will cost 12 billion roubles, but later said that 100 hectares will cost 24 billion rubles. What is the cost of the project?

— The exact figure now can not be called. We are currently engaged in the design, it will end in the summer, then choose providers. Depending on the concept of the project the cost can be very different. Wait for summer when we will come to the Board of Directors with this project, will then be exact numbers.

<p>CEO and co-owner of &ldquo;Rusagro ” Maxim Basov</p>

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Photo: Oleg Yakovlev/RBC

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CEO and co-owner “Rusagro” Maxim Basov

— Why did you choose for the construction of the first greenhouses exactly Tambov oblast? Earlier you said that in this region, the authorities provide good support for the agricultural producers.

— Yes, the Governor promised us support in the form of subsidies from the regional budget in addition to Federal. Plus we found a site which is ideal from the point of view of connection to the wholesale electricity market. All together it made Tambov oblast a priority for us. But there are other areas in the Central Federal district, which did us good suggestions and we will consider the following for greenhouses.

— If you begin construction of the first phase in the summer, then when complete?

— At the end of 2017, production will begin in 2018.

— About the greenhouse project, you said in December of 2015, shortly after the introduction of Russia’s economic sanctions against Turkey, which was the largest supplier of tomatoes to our market. Ban on Turkish tomatoes have pushed you to this decision?

— There is no connection. When investment decisions, we do not expect short-term or artificial measures. The final decision we made after the government decided to subsidize the capital costs that have made these projects profitable. Now the Federal budget is ready to compensate up to 20% of the cost of construction, plus we are subsidizing the interest rate on investment loans. If there is no support, these projects will not pay off.

— That is the product of the embargo, in force since 2014, also do not affect your strategic plans?

— Is not affected. Maybe for cheese, candy, milk, all important, but not for us. No sugar, no meat at all are not affected. We believe conservative calculations that no embargo will not.

— Now Vladimir Yevtushenkov, whose agricultural sector has never been profiled, bought a huge Agrokombinat “South”. You think this also has nothing to do with the sanctions?

He bought the old greenhouses that are already built. They have their own strategy, they buy different agricultural assets in the South of the country. We have our own strategy: the market provides an opportunity to build in Russia, hundreds of hectares of greenhouses, even thousands.

— You would not began to buy such an old complex, did not consider it as an option?

— We watched it two years ago, but decided not to buy.

— Investment “Rusagro” in projects in the far East previously estimated in 60 billion rubles That includes this amount and have not changed it?

— A count of three stages of project development for the production of pork. We now design, at the end of summer we plan to begin construction of the first phase of the pig project. The first stage will cost more than RUB 20 billion, of which 4.5 billion rubles that we have already spent. You need to get certified and to access the Chinese market. If the Chinese market will open for us until 2019, then at the end of 2019 we will come to the Chinese market.

— You said that you will be there to bring employees from different regions, to train local experts and build housing for them. And housing will build themselves?

— Themselves, but with the help of contractors. This is not the first building experience for us: this year we will begin to build housing in Belgorod region. Build a smaller house in Volokonovka. In Belgorod region we are currently completing the design, we begin construction. It will be low-rise houses. All will be two stages for a total of 48 apartments. We begin now to build the first place, as soon as she’s settled, we’ll start to build the second. The project we made a single, next year the same house will be built in Tambov region. We will continue to build as demand is created. Of course, we will build quite a lot in the Primorsky territory — there, in my opinion, the housing situation today is the worst.

— It will be on balance “Rusagro” or will become a separate business?

Even I can not say yet. We as “Rusagro” will build on certain concessional terms sell to our prospective employees. I think the infrastructure on balance to leave it makes no sense, so then the staff will gather, will make the condo and pick it up. We have no problem to service it. Our objective is to provide employees with good living conditions, so they focus on efficient work.

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“We had a currency, our greatest advantage”

— In 2015, the company “Rusagro” has purchased of 19.97% holding “Razgulay” and its debt to VEB in the amount of more than RUB 33.9 billion of the deal very complicated structure: “Rusagro” for some reason, the entire required amount took a loan from Vnesheconombank for 13 years at 1% per annum, and in return, posted a 14 billion rubles on Deposit at VEB. Who came up with the scheme of financing the purchase of “Razgulyai”?

— It was the decision of the government and VEB. Here we acted as buyers. We and several other companies called the conditions proposed to make a written offer and zadeponirovany money. We all did and we won.

All were offered the same conditions?

— Yes.

— You were the only one who agreed?

I don’t know. But we are informed, and this issue was discussed several times on the government. Because the Board of Directors of VEB is a government. And Yes, we were informed that the Board of Directors took the decision to deal with us.

— The amount of this Deposit was not specified in the proposal of the government?

— No. If I remember correctly, there was a loan amount. And we have won because of the size of the Deposit. That is, who is more Deposit the winner.

— Can you say that you were hard to win, and whether the competition is high for him?

— It was very hard. First, applicants were required to have a balance to meet the credit requirements of VEB and to be able to take [on loan] 34 billion. Second, we had during the week to zadeponirovany the amount of the offer. We proposed to 13.9 billion rubles and translated them immediately. We had currency until better times, we just sold the currency and do not take any credit. Had money, and we quickly used — it was our greatest advantage. But I know the talks were attended not only players from the sector, there were major financial institutions. We were not sure that we will win.

Company “AFG national”, which had also applied, he complained that not even received an answer to his proposal.

— Why give the answer, if your offer is bad? Was the auction companies have made bids, and the contract was signed with the company who gave the highest price. And how does or does not meet the web, I can’t comment on.

— The auction was scheduled after you and three others from “Rusagro” joined the Board “Razgulyai”. One of the sources of the newspaper “Kommersant” said that allegedly had a Commission from the Prime Minister Dmitry Medvedev to conduct a transaction with the “Carousing” “more openly”.

— I know nothing about it. But “Razguliay” is a private company, and the management is appointed by the shareholders. Shareholders of “Razgulyai” at the time decided that it would be appropriate to introduce to the Board our employees. And we did not give up. But it has nothing to deal with VEB.

— And of 19.97% of the parent company “Razgulyai” why would you?

— We are absolutely not needed. Just had one package [with interest “Rusagro” enterprises “Razgulyai”].

— That is then the parent company goes bankrupt, apparently, and you just write off?

— Yes, lifted. As part of the debt, which we will not return.

And this is what part?

— We do not know what prices will be at the factories. As all sales will come back.

— How much have you increased the power of sugar in a result of the transaction?

— While the sugar mill “Razgulyai” we only bought three. Buy there still, I don’t know, but I can say that about one plant we think.

We bought 34 bn of debt claims to “Roam”. Now we suggested will “roam” will return us the money, what can be done, only by selling assets. And “Razguliay” now sells all of its assets.

Some assets have already been sold. From them we bought today for three sugar factory, the plant in Voronezh, which is engaged in processing buckwheat and “Hercules” and owns 84 hectares of land in the Belgorod, Kursk and Orel regions. All this land — the sugar beet zone of the plants that we purchased. The plants are in a technical condition that does not meet our standards, and we have, of course, to invest in them, and in the development of raw materials base. So, on the basis of real and not project numbers, we have added approximately 35% of the capacity for the production of sugar. That gives us about 19% of the capacity for the production of sugar in Russia.

— So you step on the second place after “Prodimeks” and leave behind “Dominant”?

— Yes. But “Dominant” is not too far away — they too increase power. By the way, they also bought y “Razgulyai” Shipunovsky Elevator in the Altai region. Maybe they buy something else, though like no.

Maxim Basov

Born in 1975 in Moscow.

In 1996 he graduated from new York University with a degree in “Economics and Finance”, four years later began working as a consultant with McKinsey.

In 2001 he became Deputy Director in the company “Severstal”, in 2002 — General Director of “Kuzbassugol”, in 2004 — Deputy Chairman of the Corporation “Interpipe”.

Before joining Rusagro” to the CEO post three years, from 2006 to 2009, he worked in a similar position in group “metalloinvest”.

“Just support nice to me”

— At the beginning of year it became known that you invested $500 thousand of personal funds to the Russian company Genotek involved in DNA tests. You said and tried the company’s products. If not a secret, what is it?

— I did a full sequencing of its genome, I now know all of their acid, all predisposition to disease, likelihood of death from different situations, the most suitable I food and sports. Also made tests for their children.

— Become involved in a new sport then?

— No. Just have been curious.

— But the us is 23andMe, which Genotek take an example of creating a company. Invested in 23andMe Yuri Milner, for example, why you have decided to invest in Genotek?

— I did a study in 23andMe too. All companies in this niche are doing your tests about the same, but Genotek makes them much more. The company had a new round of investments, they were looking for capital to purchase modern machines for automatic sequencing. And I, along with other investors have participated in this.

— This was your first experience investing in the startup?

— No, not the first. I was a great experience, and mostly negative. Because venture is a very dicey topic.

— A positive experience, with a good output of the project was?

— No, it was not.

— You have some kind of investment strategy?

— Probably not. I treat this as a satisfaction of his curiosity. I don’t have time to do it professionally, because I’m very busy at “Rusagro”. But I sometimes I support nice people and good ideas.

— What kind of company you have invested?

— I am a shareholder T8 is Russia’s largest company for digital print-on-demand small print runs at low cost. Anyone can order print books. A year and a half ago I had invested 100 million RUB, I have less than 10% of the company. The benchmark for the company — a successful model of an international company Ingram.

— Hoping to capitalize on this?

— No, I’m just nice people and good ideas.