Yet another step in the growth of Kaskol

Published: 6/20/2000

The sale by US investment house Oppenheimer & Co. of its 18.59% stake in Nizhni Novgorod-based producer Sokol to Kaskol in early June has given Kaskol 38.38% of the producer and in management control alongside the state's 38% holding. The transaction, when completed, marks yet another step in the growth of this increasingly visible holding company in the aerospace and air transport sector. At Sokol's AGM, Sergey Nedoroslev, the President of Kaskol, was appointed Chairman of Sokol with the support of Oppenheimer & Co, ahead of the deal's completion, and the board has reappointed Vasily Pankov as General Director for a further three years. Kaskol plans to take an active role in the company's development reflecting its diverse acquisition strategy, which has recently included a 16% stake in heavy lift carrier Volga Dnepr. This strategy, according to Igor Ignatiev, Kaskol's Vice President of corporate strategy, is not that of a passive portfolio investor, but one of a company that invests in companies where it believes it can add value through the provision of advice and guidance to the business. With regard to the aerospace industry, Nedoroslev has commented that he believes the consolidation of the industry is its only chance of survival and the industry needs to develop a strategy that moves away from simply covering up the holes and to plan for the future, something that it is assumed he intends to do at Sokol. Nedoroslev's skills may yet be tested at Sokol given the current condition of the plant's finances and order book. With the ending of export military orders, the company is moving forward on a number of civilian programmes including the multipurpose Gzhel and the Duet regional aircraft, although orders remain elusive. Kaskol has recently become involved with the search for funding and according to reports has already made heavy commitments of support to the aircraft's designer, the Myasishchev Design Bureau. Kaskol was founded in 1988 by Sergey Nedoroslev, a 37-year-old physics graduate of the Altay State University. In partnership with two other graduates and using Nedoroslev's experience as a postgraduate at the Moscow Institute of Electronic Engineering specialising in semiconductors, he founded a private company called Altan, which initially provided software services, its first customer being the Altay Research Institute of Animal Industries. In 1994, Nedoroslev created Vostokvneshtorg, a company specialising trade and 'investment', which became involved in the large volume of lucrative barter trade between Russia and a number of countries aimed at clearing debts incurred between the USSR and those countries largely in Asia. The company became a closed joint stock company under the name Kaskol in September 1999 and has gone on to make a large number of investments either as owners or as minority shareholders and joint venture partners. The company currently has holdings and board representation in a number of heavy industrial companies: · Sokol (aircraft producer) 38.38% · Rosvertol (helicopter producer) 15% · Volga-Dnepr (heavy lift air cargo) 16% · Hydromash (landing gear and hydraulics) 60% · Central Design Bureau Iceberg (Russia's only icebreaker design bureau) · Central Design Bureau Lazurit (underwater engineering bureau) · Gorkovsky Machine Building Plant (equipment for the nuclear utilities) The company also has a number of wholly owned companies including Vostokvneshtorg: Rostechimport - involved in the provision of specialist design equipment and software to aviation and engineering companies. Its equipment is imported from a number of suppliers including Unigraphics, BAAN, Silicon Graphics and Hewlett Packard and supplied to customers throughout Russia including IAPO, Sokol, RSK MiG and Saluyut. Intersed - provides IT support and industrial systems including industrial painting, in which sector it is the representative of Air Industry System who provided painting lines for the auto industry and also Eitrex, which provides heating cables for the oil and gas industry. Its customers include car producer Zil and the Galizyn Bus Producer. BAAN-Eurasia- distributes complex automated production software Sudotecknika- offers consulting services connected with the building of ships in Russia and the Ukraine, including programmes at Ro-Ro ships at Baltiysky and container ships at Rybinsk. Pluton Ore Company - mineral exploitation in Western Siberia Moscow Tea Producer- tea processor and marketer with interests in sugar. Closed JSC SK Eastern - complex of storage facilities offering 14,000 square metres of space on the Yaroslavskoe Highway in the Moscow region. Closed JSC RPR- a share register company based in Nizhny Novgorod with 50 companies in its books Duckatsky Mine- 49% stake in the bankrupt Magadan-based silver producer acquired in a cash auction for $12m in November of 1999 and currently organised as a joint venture with Scientific Production Enterprise Polimetall. The sale caused considerable criticism when it was executed, as a Canadian mining company Pan-American Silver, holding the licence for mineral exploration in the area and a competing bidder, felt that the auction was not transparent and threatened their exploration rights. Kaskol's acquisition trail has been funded, according to the company, by internally generated funds, which it then used to fund purchases of share at auction or from other sources. It has identified companies which it believed had potential and in some cases even sold them on if they felt the price was right, as in the case of a holding in IAPO. There have been some examples of less successful investments such as Ulyanovsk-based cargo carrier Titan Cargo, although the involvement led to the acquisition of the stake in Volga Dnepr and VD taking over aircraft ordered by Titan. Currently there is no other information regarding sources of funding, but the trading activities of the mid-nineties were reported to generate considerable cash flows and it seems likely that Kaskol's start could have come from that source. Its current level of entry into the military industrial sector however, suggests that the company has powerful friends within the establishment who are keen to see Nedoroslev's version of active investment achieve changes. According to Kaskol's president, the company has avoided the oil and gas business as it does not have the expertise to add value and has focused efforts where it understood the business and could contribute additional skills to improve performance. The military industrial area is also preferred as it has few of the shareholder and other disputes that beset the natural resource and metals sectors and is more welcoming to external shareholders.

Article ID: 1863