Gazprom and Interros to cooperate on development programmes

Published: 6/22/2000

It appears that Gazprom and financial holding company Interros have overcome some serious problems concerning their interests in the Perm Motors group of companies by signing an agreement on 14th June. This relates to cooperation on the development of the Perm Motor facilities, metal companies (such as Novolipetsk Metal Plant) and the development of joint investment programmes. Interros sources report that in the next few months the partners plan to prepare and develop funding for a programme for Perm, which will involve not only investment in the business but also repayment of the facility's debts to budget and non-budgetary funds. The Perm Motors group includes: · Perm Motors (PM, parent company), owned by PMP (31.4%), state (14.25%), Gazprom (2.9%) · Perm Motor Plant (PMP), owned by PM (49%), Interros (26%), Pratt &Whitney (25%) · Aviadvigatel, Aviadvigatel owned by Interros (28%), state (20.4%) and Gazprom (16.3%) · Spark Scientific Production Enterprise · Proton - PM · Iskra Scientific Production Enterprise · Reductor (reduction gearbox) The unexpected agreements come after just three months after noisy debates and rumours about the future path of the Perm companies with Gazprom on one hand, and Interros and P&W on the other, The parties were reported to be at loggerheads regarding the future strategy for the plant and the potential focus on pumping engine production against aircraft engines, the former representing 52% of the company's outstanding orders. In January 2000 Gazprom's management, without informing Interros, approached Perm Motors with the suggestion that they increase their stakes in PM, PMP and Aviadvigatel by up to 25% in each company. Gazprom however, suggested this could be achieved by diluting the interests of Interros and other shareholders including the state. They are also reported to have gone even further by suggesting in a letter to Ilya Klebanov, Deputy Prime Minister, that the state should transfer its various interests into a holding company FIG Kompomash Corporation, which is associated with Gazprom. It also suggested that Gazprom should take a 25% stake in Kompomash with the objective of bringing it closer to the constituent companies. Interros' management obviously objected to the dilution of their and other shareholders interest and the proposed issue was disallowed. The heat of the initial discussions however, now appears to have cooled and they have now reached joint agreements relating to the future of the group. While it would be encouraging to think that that this agreement was borne of a logical discussion about the group's future, it appears that the primary motivation has been to thwart the Russian Aerospace Agency (RAA)'s entry into the fray, with the proposal to form a new body called the Perm Centre of Engine Production out of the Perm plants, with a schedule to have the organisation up and running by the end of 2000 according to Victor Kobelev, General Director of Perm. The state would own 51 % of the new entity, with the state's holdings in PM, PMP and Aviadvigatel increased to the important level of 25% plus one share. Sources in PMP believe Interros and Gazprom together can produce a viable alternative to the RAA proposal, which will protect their investments. This could possibly use the 51.4 % of PMP's shares that were transferred to the state in 1998 as security against Perm motors' debts to the budget and could be recovered if the debts were repaid giving the two shareholders a claim to the shares. More likely in the short term is that little will happen, given the general limbo-like condition of the government's decision-making relating to the industry and the general confusion as to what exactly is the government's approach to the industry and policy for the Russian Aerospace Agency. It seems likely, whatever scheme is adopted, that the end result will be a fully integrated engine producer incorporating all the elements currently loosely held within the group and following through on the Perm Engine/Aviadvgatel joint management as a precursor to merger.

Article ID: 1871