The cargo company Novotrans, one of the top ten largest Russian railway operators, has been suddenly accused of money laundering. How might it be connected with a bond-secured loan of over 50 bln rubles and the company's implementation of a project to create a modern port infrastructure in Ust-Lug in the Leningrad region?
Novotrans is going to carry out an ambitious project for cargo transshipment in Ust-Lug -- according to experts, "a real diamond". Probably, that was exactly what the bonded loan at the Moscow Exchange had been raised for -- to implement this very project. However, in anticipation of the placement (offering) of Novotrans, the company was suddenly accused of laundering billions of dollars through a scheme of fictitious transportation.
The investigative committee interfered in the case immediately. Several businessmen, including Dmitry Bosov and Ilya Traber, were accused of “conducting a smear campaign.” But it is possible that an attempt to get a stake in LUGAPORT was also being made by some other Russian billionaires, who have enough spare funds to implement the next mega-project.
A Few Line About Finance
The Novotrans cargo company is one of the largest operators of railway rolling stock in Russia and the CIS. In 2018, the value of the holding group's assets exceeded 54 bln rubles. The total fleet of freight coaches exceeded 25,000 units. Novotrans is on the list of top ten rolling stock operators in the INFOLine Rail Russia rating and in the RBC top-400 rating of the best Russian companies.
According to the consolidated financial reports for the first nine months of 2019, the company' income under Russian Accounting Standards increased by 13 percent compared to the same period of last year and amounted to 30.5 bln rubles. Operating profit grew by more than thirty percent up to 10.7 billion rubles, and net profit reached the level of 8.2 bln rubles. The holding's net profit margin was 26.9 percent. Tax payments to the budget for the first nine months of 2019 were 4 bln rubles.
In 2018, Novotrans Activ launched LUGAPORT's investment project to create an up-to-date port infrastructure as part of the development of the fourth, fifth and sixth lines of the general cargo complex at the Ust-Lug sea trading port. Konstantin Goncharov, the head of the holding, said in his interview with Izvestia that such a universal sea terminal had not been built in Russia since the Soviet times. LUGAPORT is planned to increase Russia’s export and import potential due to its beneficial geographical location and the capacity for serving ships with large displacement.
“One of the priorities of the project is to redirect the cargoes which are going to the Baltics and Finland, including grain vessels,” Goncharov stressed. The total investment in the project is approaching 46.5 billion rubles. The Novotrans project is expected to reach full operational capacity within five years. The first line of the LUGAPORT terminal will be put into operation by the beginning of 2023. The second and third lines will come on stream the beginning and the end of 2024 respectively. The designed capacity of the terminal is 24.3 mln tons per year, and its area of development is 73 hectares.
It is quite likely that in order to invest in the development of Ust-Lug to the fullest, the company decided to enter the bond market with a loan. By the way, quite successfully. Thus, on October 29 the Moscow Stock Exchange registered the program of Novotrans bonds, series 001R. Under this program, the maximum amount of issues is 50 bln rubles. The maximum circulation period of the issues is ten years (3,640 days). The program is valid for ten years.
Now a Virtually Detective Story
Against the background of all this financial splendor and excellent prospects, reports on the beginning of investigation checks at Novotrans by the Investigative Committee of Russia look like a thunderbolt from a clear sky. According to Regmum agency, the checks are connected with the case of laundering of $ 10 bln with the aid of a scheme of fictitious transportation.
Obviously, such rumors have a depressing impact on the investors’ attitude towards the company's securities. Moreover, they have been promptly supplemented with other fantasies. For example, that Novotrans's financial status is far from perfect -- otherwise why would it have to take this huge loan of over 50 bln rubles, and potentially 8 bln rubles, while the average volume of project financing transactions now rarely exceeds $ 30 mln?
According to the newspaper Gudok, for instance, experts indicate that Novotrans has the accounts receivable of 7.673 billion rubles as of June 30 this year. This is comparable to the cost of fixed assets of 8.322 bln rubles. The size of accounts receivable also raises fears as it has increased by 1.3 billion rubles over the past six months. Besides, there is a problem with the proprietary funds. The security norm is 10 percent, and Novotrans has a negative value. This clearly demonstrates its dependence on borrowed funds. As of June 30, 2019, Novotrans had 16.584 bln rubles of long-term liabilities and 11.238 bln rubles of short-term liabilities.
The situation became even tenser when market operators started thinking about who would benefit from the distribution of such information. For example, Dmitry Bosov, the owner of Siberian anthracite, is named as one of the potential initiators of smear campaigns. As wek.ru has already written, Sibanthracite is to pay 130 mln rubles to Novotrans at a ruling of the first instance court. At the same time, without waiting for Sibanthracite appeals, Novotrans brought actions before the court for more than 450 mln rubles. And new actions are coming soon in the amount of more than 1 bln rubles.
According to the commercial case file, Bosov's company is going through hard times. Many market operators have claims against Sibanthracite, including the large companies like the Russian Railways (RZD) state railway corporation, Federal Passenger Company, Federal Freight Company, and Novotrans. As a result, Dmitry Bosov may lose billions. Some people believe that the company decided to stop the downhill slide by redirecting funds from debt repayment to information activity. Specifically, the Telegram-channel T34 and a number of others are reporting that negative news regarding Novotrans is likely to be connected with Sibanthracite.
Seemingly, in such a situation Bosov should carry on negotiations with his dissatisfied partners at least for restructuring the debts, while he, in fact, has launched a propaganda attack on them.
Unanswered Questions. For the Time Being
“The story of Novotrans causes a flashback of history with Rolf but on a larger scale,” independent analyst Dmitry Adamidov told wek.ru. “Let's start with the fact that the accusation itself of contraband trafficking of oil products for the company, which most transports coal, sounds a bit strange. First of all, the transport operator benefits nothing from such contraband. It is the cargo owner who benefits. Secondly, the transportation of oil and oil products requires a completely different rolling stock. Third, if we assume that for some reason Novotrans managers suddenly wanted to make a fake transport contract in its own interests, it would be logical to add “a little bit more coal” instead of performing an “oil show.”
Adamidov draws attention to the fact that initially the media published reports on the withdrawal of funds under a fake loan agreement, not on oil smuggling but. In general, this was most likely a corporate conflict -- a far-fetched accusation, a visit of law enforcement officials, and then a proposal “to deal with a matter amicably”: to give away the asset, to refuse some plans and projects, etc.
“I must say that the company responded to the massive information attack in Telegram with articles in the traditional media linking these incidents with winning the trial against Sibanthracite. Allegedly, the competitors are taking revenge. Of course, chances are that it might be so. The history of Russian business is replete with diverse inadequate actions, and this one is not the most eccentric,” says Adamidov. “I personally have doubts because in the context of the conflict the bonds for fifty 50 bln rubles, which have been recently registered by the company, are mentioned frequently and persistently.”
This money is needed for the Ust-Lug port investment program. The port is already good-looking. Adamidov is confident that due to the relatively fast formation of the ITC North-South it will be generally “a diamond”. If you try to earn back money for such an asset, the timing is right. “These are, of course, just rumors, nothing more. But the similar situation with Rolf unwittingly suggests that the reasons are approximately the same in case of Novotrans. We will put aside the obvious nonsense like “why such a sum”. The bond program for ten years provides for refinancing. All the issuers register programs providing for two or three refundings (the average term of the funded loan is three-to-five years). That is, the face value is several times bigger than what is planned to be borrowed at a time,” Adamidov said.
“According to the official information confirmed by international auditors, Novotrans has positive financial statements. Its consolidated income for the last year amounted to 36.9 billion rubles, net profit was 8.2 billion rubles. This year the Expert RA assigned the company a rating at the level of ruA (a moderately high level of creditworthiness/financial reliability/financial strength compared to other objects of the rating in the Russian Federation) with a stable forecast. Dmitry Lukashov, IFC Markets analyst, said in his interview to wek.ru that it is obvious that the media campaign focusing on the situation within the Novotrans Group is seriously exaggerated.
Even just looking at the news background this year -- the company does not seem to be problematic. Thus, in the first half of the year, the project on repairing over 27,000 freight coaches of the holding company's fleet and third-party organizations was implemented. This is 17 percent more than in the same period a year earlier. In addition, the company has been preparing for the construction of the Novotrans Baltic Car-Repair Plant in the Leningrad region. Accordingly, the company has operational funds for the development.
Another question is that the development of the infrastructure in Ust-Lug requires much more funds, so the debut issue of bonds at the end of November is a good way to attract investments for its large-scale project, Lukashov,said. Judgments on whether it is a good time for the placement or not are time-consuming. There is an opinion that the float will not bring a serious income due to the negative external background. “But there is a drastically opposite one, too, and we welcome the latter more,” says Lukashov.
Lukashov says that a good motive for nine months is really phenomenal -- the holding increased net profit by 72 percent. That is, the company has significantly strengthened its position versus the previous year. Against these inspiring indicators, the news of investigation checks and charges for violation of the law and withdrawal of funds abroad with the help of illicit schemes look farfetched.
According to Lukashov, the noise around Novotrans could have been raised by any of its closest competitors or people who have long disputes or unresolved problems with the company itself or its owners.
Meanwhile, Dmitry Bosov, the owner of Sibanthracite Group, the Russian market leader in production and export of anthracite, remains a key player raising suspicions. His company has owed more than 1.5 bln rubles to Novotrans for the services provided and for the downtime of its coaches. For unclear reasons, instead of restructuring its relatively small debts, the company continued to aggravate the situation, allowing the lawsuits from Novotrans and its subsidiaries to increase.
“To be honest, the suggestion that all smear campaigns targeting Novotrans come from Bosov seems to be too farfetched and too simplistic. Bosov is a serious businessman, his company is the largest exporter, and “burying” the reputation of his own business partner (in fact, Sibanthracite is a consumer of Novotrans’s services) is a ridiculous step,” Lukashov says. “I can assume that the information attack on Novotrans is more likely to be linked to private issues of Konstantin Goncharov or his inner circle. As for the influence on the situation around placement on the Moscow Stock Exchange, such “fake news” campaigns are unhelpful against the background of successful operational indicators. Investors rely on real figures, not dubious publications in the media, not the first three business daily newspapers.
Meanwhile, the same ubiquitous media are making assumptions about who is interested in Novotrans’s troubles. For example, according to Regnum, it is possible that the interest of the investigation in the company is the result of the fact that Konstantin Goncharov has won the fight for the Ust-Lug port against the famous “authoritative” businessman Ilya Traber. Perhaps Traber is taking revenge on Goncharov. The confrontation has been lasting for ages: in autumn 2018, Goncharov “snatched from under the nose” of Traber the Transport and logistics complex (TLC), owning the terminal Yug-2 in the Ust-Lug port and the operator of the complex -- the stevedoring company Commercial Seaport of Ust-Lug,” says Lukashov.
Anyway, here a logical question comes up: Cui prodest? Who benefits that Novotrans either couldn't float the loan and didn’t have money for the independent implementation of the project in Ust-Lug -- in the best case, or has paid huge fines because of tax claims by the authorities, and Goncharov potentially lost his company -- in the worst case?
It noteworthy that the interests of quite a few Russian companies and their contractors have mixed up around Ust-Lug. The most famous of them are, for example, Alexey Miller's Gazprom and its Russian and Chinese partners, Leonid Mikhelson's NOVATEK, and Anatoly Sedykh's United Metallurgical Company. The Rotenbergs have their own interests, too. Oleg Deripaska also announced his intentions to develop projects in Ust-Lug.
Perhaps not all of them are happy with the new major Novotrans project in Ust-Lug. Perhaps the creation of a multirole complex with sea terminals for general and bulk-loaded cargoes does not please the tandem of Andrey Melnichenko’s EuroChem and Andrei Guriev’s PhosAgro ?
Or maybe the oil theme of the “shake-down” was used to cause troubles between Konstantin Goncharov and Nikolai Tokarev’s Transneft for some reason? By the way, such a scheme has been used recently in order to sow a discord Igor Sechin, the head of Rosneft, and one of his partners. Or maybe they put sticks into the wheels of Novotrans with some officials of the Ministry of Transport? RZD has its own interests in Ust-Lug. Besides, the recent instruction of Deputy Prime Minister Dmitry Kozak to cancel the order of the Ministry of Transport to transfer the railway industry from roller bearings to cassette bearings may also have impact here as a factor of petty revenge. The transition was lobbied by RZD and Vladimir Tokarev, a deputy transport minister, while other operators spoke out against it saying that the transition would result in significant losses for them and threatening the government to go to neighboring countries. The blackmail was successful and the relevant order was cancelled. But who knows if the railroaders harbored any grievances?
However, there may be more reasons in the modern civilized Russian business to undermine the reputation of its competitor, or to destroy partners and stay on the sidelines.