EuroChem

Assets

EuroChem produces primarily nitrogen and phosphate fertilizers, as well as certain organic synthesis products and iron ore. It moved its headquarters to Zug, Switzerland, in 2014 and operates production facilities in Russia and Western Europe and employs more than 20,000 employees globally.

Nitrogen (natural gas, ammonia, nitrogen fertilizers, and organic synthesis products):

Phosphates (apatite, iron ore, phosphate fertilizers, and feed phosphates):

Potash, EuroChem is currently developing 2 greenfield projects in Russia:

OTHER:

Distribution Segment

Sales

Logistics

Ownership

EuroChem is 90% owned by Andrey Melnichenko, who ranks 139th in the Forbes world billionaires list 11th wealthiest in Russia) with his personal wealth of US$ 10.3bn as of July 2016. with the remaining 10% owned by EuroChem Group AG CEO, Dmitri Strezhnev. Melnichenko also has a large stake in Russian coal producer SUEK.

Murmansk Commercial Sea Port

On 24 April 2013 EuroChem finalised the acquisition of a 47.67% interest in the share capital of OJSC "Murmansk Commercial Seaport" represented by 53,943 voting shares for 3,113,859,000. The Group made a prepayment of 2,522,755,000 for the acquisition of a 38.62% interest representing 43,703 voting shares in December 2012 and in April 2013 additionally acquired a 9.05%, interest representing 10,240 voting shares, for 591,104,000. Russian Financial Control Monitor on 26 April 2013 quoted EuroChem’s CEO who commented on the transaction and said that "the price is comparable to recent privatisation deals of similar assets and the purchase was made in the open market".

The privatisations of the port began in late 2012, with SUEK – a mining company controlled by Andrey Melnichenko – acquiring a 24.95% stake. At the beginning of April 2013 it purchased a further 24.91% increasing its stake to 49.86%. As a result of EuroChem’s acquisition the two companies controlled by Melnichenko own 97.53% of the Murmansk port. On 26 April 2013 the Russian information agency Interfax reported that EuroChem plans to make a mandatory offer to purchase the remaining shares from minority shareholders thus becoming a majority owner of the port.

EuroChem Agro (K+S Nitrogen)

In July 2012, EuroChem completed the acquisition of K+S Nitrogen, a company marketing nitrogenous fertilizers with a focus on major customers in agriculture and special crops such as fruits, vegetables and grapes. In addition to the fertilizers produced by EuroChem Antwerpen and delivered by BASF, K+S Nitrogen also marketed the goods of other European fertilizer producers. K+S Nitrogen was subsequently renamed EuroChem Agro and is based in Mannheim, Germany.

EuroChem Antwerpen (BASF fertiliser assets)

BASF sold its fertilizers activities in Antwerp, Belgium, to EuroChem in March 31, 2012.

Severneft-Urengoy

On 19 January 2012 EuroChem acquired Severneft-Urengoy, an oil and gas operator with exploration licenses for gas fields in the Yamalo-Nenets Autonomous District in the North of Russia for US$403 million. The acquisition is part of the company’s back integration strategy to meet raw material requirements with its own supply. At full capacity, Severneft-Urengoy could produce enough natural gas to meet close to a quarter of EuroChem’s annual requirements. Natural gas is the primary raw material used to produce ammonia, the main building-block for nitrogen-based fertilisers.,

Karbamid 2

In March 2008 EuroChem purchased a carbamide production unit, Karbamid 2, from Azotara Pancevo for €32.5 million. The plant was subsequently dissembled and shipped to Russia. The €32.5 million proceeds from the sale of the fertiliser plant are reported to have gone missing. Azotara-Pancevo’s former management is currently under investigation for fraud and mismanagement in relation to the company’s privatisation and sale of Karbamid 2 to EuroChem. Charges of organised criminal activity have been lodged against the consortium’s management and various allegations of fraud are being investigated. An international arrest warrant has also been issued for the Lithuanian Chief Financial Officer who signed off Karbamid 2’s sale.

OJSC Sary-Tas

In November 2008 EuroChem acquired 56.33% of the Kazakh owned share capital of OJSC Sary-Tas in Zhambyl region (southern Kazakhstan). The phosphorite pellets production plant ceased production in 1993. EuroChem says it is building a new plant on the site investing over US$2.5 billion. Andrey Melnichenko has asked the Kazakh government to provide cheap gas for the project.

Potential reorganisation

On 5 December 2012 Prime News reported that EuroChem is planning to set up another unit outside of Russia. EuroChem is reported to be planning the establishment of a new entity which will act as the guarantor of the company’s Eurobonds and which could later operate the company’s potash and gas projects. Referred to as "Topco" (i.e. top holding company) it would own at least 70% of EuroChem’s debt and thus become a core unit in the corporate structure of the group.

On 3 October 2014, it announced that, driven by the growing internationalization of the Group’s activities, potential M&A activity, and other capital markets considerations, the Group has established EuroChem Group AG, a new holding company for the Group, earlier this year. The new holding company is a wholly owned subsidiary of EuroChem Group SE (Cyprus) and based in Zug, Switzerland. Starting from the third quarter of 2014, consolidated financial results prepared in accordance with International Financial Reporting Standards (IFRS) are reported quarterly from EuroChem Group AG level in US dollars. EuroChem Group AG is rated BB (stable) by both S&P and Fitch.

Initiated in 2012, the optimization of the Group’s structure was approved by the Board of Directors in 2014. This information has been previously disclosed in corporate presentations and the Information Memorandum for the Group’s Eurobonds issued in December 2012. While necessary amendments to the Group’s corporate governance structure will be implemented to reflect its new legal structure, the Group remains committed to following best international corporate governance practices.

Chemical spillage

In 2010 EuroChem began constructing a bulk port terminal in Tuapse in the south of Russia. The local environmental organisations accused EuroChem of federal law violation since the construction was taking place in a residential zone. In March 2010, there were reports of a spillage of chemicals at EuroChem’s Tuapse terminal while EuroChem was testing the loading of chemical fertilizers onto a tanker. The spillage was later blamed by ecologists for the death of four dolphins at Sochi. Local residents reported a substantial deterioration of air quality claiming that this resulted from the emission at the EuroChem terminal. The local resident’s concerns soon led to protests in May 2010 of around 3,000 people against EuroChem. EuroChem denied the company bore any responsibility for the alleged deterioration of air quality in the city. In spite of the denials, EuroChem CEO Dmitri Sterzhnev admitted at a press conference following the protests, that during the test drive of the terminal, the company had in fact violated administrative law and had paid a fine as a result. In June 2011 information about the protests reached Medvedev, who was President at the time and he personally ordered to postpone the launch of Eurochem’s terminal in Tuapse.

A series of lawsuits was brought by environmental organizations as well as by local residents in district and regional courts. Ultimately the Krasnodar regional court, supported by an expert from the regional unit of Rospotrebnadzor, the state environmental watchdog, ruled in August 2011 that the construction was lawful. The construction of the terminal has now been completed and the port is operating.

Baltic Sea

According to preliminary Finnish research there is a phosphorus leak in the Luga River in the volume of 1,000 tonnes annually. It may be from the gypsum waste piles of the EuroChem factory near Kingisepp, although EuroChem has denied this. In April 2012, Russian officials arrested environmental expert Seppo Knuuttila, who had been working on behalf of the Finnish Environment Institute and HELCOM. He was interrogated for a total of fourteen hours by the officials, who demanded to have his computer at customs. Mr. Knuuttila was examining Luga river phosphate content, as agreed.

The findings of an investigation by HELCOM, the international ecological association, found Phosphorit in all likelihood responsible for the pollution. Specifically HELCOM accused EuroChem of improperly monitoring phosphorus runoff from its Phosphorit facility, an issue that was also discussed in the Finnish press in January 2012. The Finnish-Russia cooperation on reducing phosphorus in the Baltic Sea is ongoing indicating the ecological problem is still present.

The Helsinki-based John Nurminen Foundation, a Finnish foundation specialized in Baltic Sea protection, has been working with EuroChem on the Baltic Sea phosphorus monitoring and reduction program.

In June 2012, EuroChem and the John Nurminen Foundation agreed to jointly appoint an independent organization to assess the effectiveness and sustainability of the surface water run-off treatment system which was constructed at the Phosphorit factory in March 2012. The system was constructed to purify phosphorus containing surface water run-off, originating in the area adjacent to the factory. In July 2013, the John Nurminen Foundation and EuroChem jointly appointed Atkins, a design, engineering and project management consultancies, to assess a surface run-off treatment system near the Phosphorit fertilizer facility and to conduct monitoring of the Luga River. Atkins will also monitor phosphorus concentrations in the Luga River upstream and downstream of the factory for one year, and calculate river phosphorus loads to the Baltic Sea.

After having become concerned about the condition of the Baltic Sea in 2004, the Board of the John Nurminen Foundation consulted leading experts on the marine environment to find out if the Foundation could play a concrete role in protecting the Baltic Sea. According to the experts, the fastest and most cost-efficient method of improving the condition of the Baltic Sea would be to intervene in the operation of wastewater treatment plants located in its catchment area by intensifying their phosphorus removal. The three largest wastewater treatment plants in St. Petersburg were chosen as the first target. By making their phosphorus removal more effective, the Gulf of Finland's phosphorus load usable for algae can be reduced by almost 27%. According to the Finnish Environment Institute, this is the quickest and most cost-effective way to improve the open sea condition of the Gulf of Finland, when comparing all possible water protection measures in Finland and Russia. The measure will visibly reduce the algae growth in the Gulf of Finland after just a few years, provided that the other surrounding circumstances do not change considerably.

Worker fatalities

In May 2009 a warehouse for mineral fertilizer at the Tuapse Buker Terminal partially collapsed killing two contractors present. An investigation into the accident was launched by regional authorities.

Fires

In July 2012, two fires took place at the EuroChem's Nevinnomysski Azot, which is based in the Stavropol region in South-West Russia and primarily produces nitrogen-based fertilizers. According to Russian media no toxic emissions or injuries emanated from the fires.

Shaft sinkers

Following the early termination of a shaft construction contract, in October 2012 EuroChem filed a claim against Shaft Sinkers (Pty) Ltd. (Shaft Sinkers), seeking US$800 million compensation for the direct costs and substantial lost profits arising from the delay in commencing potash production. This was a result of the alleged inability of Shaft Sinkers to fulfill its contractual obligations and complete the construction of the Gremyachinskoe cage shaft, primarily due to problems with the grouting technology. In October 2012 Shaft Sinkers presented an interim claim letter to the Group claiming compensation of US$ 45 million in costs incurred by them up to and inclusive of 30 September 2012 in connection with the termination of the construction contract. The above disputes are subject to arbitration as specified in the contract. An outstanding advance given to Shaft Sinkers of 495,387 thousand was written off during the nine months ended 30 September 2012. As well, due to the failure of the grouting technology employed in the cage shaft construction, expenses previously capitalised, amounting to 3.116 billion, were written-off during the nine months ended 30 September 2012.

EuroChem lodged claims in the Dutch courts accusing International Mineral Resources (IMR), wholly owned by the ENRC trio of Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov, of "blatant fraud, exacerbated by bribery". EuroChem had previously said it was claiming damages of $800m (£500m) from its supplier Shaft Sinkers, which is 48% owned by IMR, following problems with a $2bn Russian potash mining project. In the new case, the fertiliser group alleges that an IMR executive bribed a EuroChem employee with hundreds of thousands of roubles to cover up the alleged ineffectiveness of Shaft Sinkers' work. It also claims IMR facilitated the concealment of a report that questioned whether Shaft Sinkers's sealing technology could be effective on the potash project.

EuroChem obtained an interim freezing order covering more than €886.5m of assets belonging to International Mineral Resources (IMR), a company owned by the founders of ENRC. The order was granted pending a full trial by a Dutch court as part of a civil suit filed by EuroChem. It claims damages of €660m over fraud allegedly committed by an employee of Shaft Sinkers, the South African mine shaft excavator company in which IMR holds a 48 per cent stake.

Shaft Sinkers has dismissed as "nonsensical" the claim brought by EuroChem, Russia's third-largest fertiliser firm over the flooding of a mineshaft that delayed a $4 billion potash project.

The case is ongoing.

Severneft-Urengoy

On 19 January 2012 EuroChem acquired Severneft-Urengoy, an oil and gas operator with exploration licenses for gas fields in the Yamalo-Nenets Autonomous District in the North of Russia for US$403 million.

In March 2013 "Reverta AS" filed a claim against LLC "NK Severneft" and LLC "Severneft-Urengoy" contesting the property purchase and sale transactions made between these two entities in 2011, preceding the acquisition of LLC "Severneft-Urengoy" by the Group. As part of the proceeding, the court had issued a ruling to impose injunctive relief restricting the ability of LLC "Severneft-Urengoy" to dispose of certain property. The Group contested the restriction and in June 2013 the arbitration court dismissed the injunction. The case had no bearing on the Group’s activity.

Monopoly claims

The EuroChem owned Nevinnomysskiy AZOT plant was fined by the Federal Anti-Monopoly Authority in 2007 for exploiting its dominant position as the owner of the electricity network in Nevinnomyssk and depriving other companies of access.

Financing

In April 2013 the Russian newspaper Vedomosti reported that EuroChem was looking to take a loan of US$700 million to finance its current development projects. The loan will reportedly be issued by a consortium of Russian and foreign banks.

On 27 August 2013 EuroChem announced that it has signed a new debut US$1,300,000,000 unsecured loan facility on a club basis. The proceeds were used to pay down the outstanding amount under EuroChem’s 2011 US$1.3 billion pre-export facility.

In February 2014 EuroChem reported its net profit fell 62 percent in 2013 to 12.3bn (US$350 million) due to weak prices in the fertiliser markets.

Initial public offering

In March 2013, Andrey Melnichenko revealed that EuroChem is planning an IPO in the next few years. The chairman said the company will launch an IPO after it had completed the development of its potash assets and suggested a date at the beginning of 2016. EuroChem will set the parameters of the offering in 2015 but Melnichenko said that the stake is likely to exceed 20%.

Chief financial officer Andrey Ilyin has said EuroChem plans to issue about 25% of its shares in London in 2017 or 2018.

Peers