MOSCOW, May 14, 2013 (GLOBE NEWSWIRE) -- After several years of unprecedented growth, Russian construction boom has come to an end and the whole construction industry in the country is poised for changes, according to the analysis by RBNN Consultancy that tracks Russian industrial sector. Because the construction sector is highly cyclical, analysts expect changes in several companies, including major cement producer Siberian Cement, developers PIK, Basic Element and other companies.
Robert Klincewich, head of research for RBNN, said: "The sector is changing and we expect increase of M&A activity and substantial capital shifts, especially in more vulnerable companies". Major producer of cement and clinker, Siberian Cement, raised eyebrows at the annual Russia Forum held by Sberbank's investment banking division (former Troika Dialog) in April and frequented by investment professionals and Russian corporates' senior management, when it demonstrated that it had no interest in outside investors or meet the most basic reporting and transparency requirements for public companies, says research note by RBNN that was published this week.
Siberian Cement is a cement producer that controls approximately 50% of the regional market in Russia's vast Siberia region and has a market capitalization of approximately US$ 390 million. The company has a free float of more than 40% and was a "hot pick" in 2008 when the Russian construction market was booming and the company was making consistent efforts to improve transparency and planning. SibCem has lost nearly 95% of its market value since 2008. The Russian cement market expanded by 9.5% year-over-year in 2012, while the Siberian regional cement market saw an 8% increase in supply in 2012.
During the presentation attended by RBNN analysts, SibCem CEO Georg Kleger and VP Alexander Cherepanov acknowledged that full-year 2012 accounts to be delayed until July 2013, and Cherepanov even went on record as saying that SibCem's public company status went against its best interests.
RBNN research note says that the company "not appear to be interested in keeping up strong investor appeal because of an ongoing corporate conflict and a mismatch between the management and core shareholder's interests and those of minority shareholders. The core shareholder and management are clearly betting on lack of transparency at the moment, even in a lower stock price, all in order to reduce SibCem's investment appeal to a minimum. This means that minority shareholders are losing money," Robert Klincewich stated in the research note, adding also that SibCem management did not even seem well prepared for the analyst meeting: "The management could not comment on the state of the company's borrowing, even though this is public information disclosed in financial reports. Controlling shareholder Oleg Sharykin appears to see the company as his private asset, even though he was behind SibCem's IPO. SibCem is a textbook example of a clash of interests between management and minority shareholders."
"The meeting of the management with analysts left a negative impression," Sberbank transportation and materials analyst Mikhail Ganelin wrote in a research memo. "Chairman and core shareholder Oleg Sharykin (who holds a 51% equity stake) has absolutely no interest in improving financial transparency or corporate governance, creating the impression that he is the sole decision-maker at the company, with senior management relegated to running day-to-day business of the company. SibCem has no intention of paying dividends of buying back stock, which suggests a very low probability of positive stock performance, despite a relatively strong cement market."
Robert Klincewich seconded this view in his SibCem note, writing, "Chairman Oleg Sharykin is acting like the sole owner of the company, ignoring other shareholders' interests – for example, he has no plans to pay dividends and provides personal guarantees for loans."
The quality of investor disclosures at SibCem has gone steadily downhill since 2008, when the Company's President Andrey Muraviev resigned. Muraviev has recently announced his intention to be nominated for SibCem's Board of Directors. He intends to stand up for the rights of minority shareholders, who have not seen dividends in years and are lacking data to evaluate the company's operations. Muraviev stated his intention to work with the management and all shareholders towards optimization of SibCem's operations.
SibCem's minority shareholders concerned about the state of affairs at SibCem are taking action to protect their interests in 2013: they have organized a SibCem shareholder association and nominated Andrey Muraviev, Andrey Vinkov and others to the Board of Directors. Minority shareholders expect the businessmen to protect their best interests on the Board of Directors, ensuring dividend payments and a return to proper transparency and corporate governance standard.