Previous
Eastbridge Capital Partners offers to purchase Ilim Pulp�s share in Ust-Ilimsk Woodworks, while Ru
Added: (Mon Feb 12 2007)
February 12, 2007, Moscow � Eastbridge Capital Partners (ECP) confirms a formal offer to buy Ilim Pulp�s share in Ust-Ilimsk Woodworks (UIW). According to Hugo Barrett, ECP�s Managing Director based in Hong Kong, an offer was sent to Ilim Pulp�s headquarters on January 22. �This offer has been made in attempt to break the deadlock between the shareholders that has been caused by Ilim Pulp�s interference with UIW operations and their unwillingness to act in accordance with Russian law and internationally accepted business practices. The offer is based on the �fair� valuations that Ilim Pulp�s management proposed to Eastbridge in October and December 2006, following nine months of their interference with UIW�s operations. We are still awaiting an official response to our offer,� � Hugo Barrett said.
The offer to purchase Ilim Pulp�s shares came on the tail of the General Meeting of UIW shareholders where they were offered, for the second time, an amendment to the composition of the Board of Directors, giving two out of five seats to Ilim Pulp representatives. Previously, in June 2006, such representatives were not elected to the Board when the respective applications submitted by Ilim Pulp were found to contravene Russian Law on Joint Stock Companies. An attempt to hold the meeting with the same agenda last December failed because Ilim Pulp had failed to implement an earlier commitment to sign a number of infrastructural agreements with UIW, to guarantee the supply of electricity, heat, compressed air, steam and other infrastructural inputs.
By January 19, 2007 (the new date for the Shareholders Meeting) the key supply contracts had still not been signed by Ilim Pulp Group companies in their pre-agreed form. Thanks to ECP�s goodwill the meeting did take place. But due to the absence of a signed contractual package in the pre-agreed form, the meeting again failed to make a decision on the primary issue on the agenda � election of the new Board of Directors of UIW.
�We have to acknowledge that there is still no constructive and consistent approach to be seen in the actions of Ilim Pulp Group, although we have been able to work jointly towards solving some disputes with them in respect with the latest events, emphasizes Mr. Furmanov, Director of UIW�s Management Company. - We pre-agreed on the terms and conditions of these infrastructural agreements with Ilim Pulp�s Headquarters in St. Petersburg. Yet, at the same time, we received repeated proposals to sell our shares in UIW (a majority stake). However, Ilim Pulp�s managers in Ust Ilimsk unexpectedly began to insist on introducing legal stipulations that would allow our suppliers (Ilim Pulp�s companies) to avoid liability for non-fulfillment of their contractual obligations. This is nonsense. No sensible enterprise would be happy with suppliers like that. What is even more strange is that Ilim Pulp managers in Ust-Ilimsk acted in direct defiance of their superiors in St. Petersburg! We get the impression that Ilim Pulp�s management is trying to look fair in an unfair play. This cannot benefit UIW in any way, or its shareholder value, much less the image of a leading Russian company which recently announced plans to sell 50% of its stock to International Paper. So we repeatedly urge our partners to adhere to constructive dialogue, logic, numbers and mutual benefit. We are not losing optimism that the situation around UIW will revert to normal in the interests of all the shareholders.�
The General Shareholders� meeting coincided with decision by the Federal Antimonopoly Service for Irkutsk region (FAS, the Federal Government Agency in charge of anti-monopoly legislation) ruling against Ilim Pulp Group and its companies in violation of Russian Federation legislation, particularly clause 3, part 1, article 10 of the Law �On Protection of Competition.� The essence of the UIW�s complaint was that in August 2006 JSC Ust-Ilimsk Pulp Mill, part of Ilim Pulp Group, using its dominance and aspiring monopolistic supply of wood raw materials to the Ust-Ilimsk Woodworks, blocked access roads to UIW and destabilized the operation of the factory causing stoppages.
As previously reported, the UIW is located on the same industrial site as Ilim Pulp�s Ust- Ilimsk Pulp Mill. Throughout 2006, the local management of Ilim Pulp violated existing supply agreements with the clear aim of destabilizing the operations of UIW. Ilim Pulp seeks monopolistic control over prices on wood raw materials. At the direct instruction of Ilim Pulp�s management in the region, UIW also saw its steam, air and fuel oil supply cut off regularly throughout the year. The Federal Antimonopoly Service made a previous ruling in respect to Ilim Pulp and ordered it to restore fuel oil supply to UIW. In spite of the obvious nature of these violations, Ilim Pulp filed an legal suite against the FAS ruling in the Arbitration Court. Ilim Pulp continues to defy the FAS� ruling and The UIW is forced to use an alternative method for supplying fuel oil to the plant.
Victor Furmanov, The Director of the UIW�s Management Company stated: �This is the second case filed by UIW against Ilim Pulp with FAS� resolution against Ilim Pulp. FAS has ruled that the actions of Ilim Pulp violate the Federal Law of the Russian Federation �On Protection of Competition.� We would like to believe that Ilim Pulp can agree a pragmatic resolution to this dispute and implement the FAS ruling with immediate effect.�
The Eastbridge Capital Partners Fund, L.P., is an international private equity investment fund dedicated to Russia and China with initially committed capital of USD 100 mln. As part of its diversified investment portfolio, the Fund has substantial investments in panel board and wood processing sectors both in Russia and China. The Fund�s management team is led by Mr. Barrett (Asia) and Mr. Gunya (Russia & CIS) and is comprised of professionals who formerly worked in private equity investment and other merchant banking entities for ING Baring, KPMG Peat Marwick, Russia Partners and other leading international financial firms.
Ust-Ilimsk Woodworks OAO is a leading panel board manufacturer in Russia. The company�s sales in 2005 were RUR 601 mln (16.7% growth over 2004), EBITDA margin for the period reached 23.2%. In May 2006, the company successfully accomplished its initial RUR400 mln bond issue with the Moscow Interbank Currency Exchange (MICE). One third of the offering was purchased by international investors in Europe and the Americas.
Media Inquiries:
Grace Chung,
Tel: (852) 22 349 0102
Fax: (852)22 349 0101
e-mail: office@eastbridgecap.com