By John Helmer, Moscow
When he was last spotted at his own devices, Ziyavudin Magomedov announced on September 20 that some time in the next decade he and Gazprom intend to build a refinery to convert natural gas into liquefied natural gas (LNG) in bunker form to power a Magomedov fleet of newly designed, newly launched ocean-going ships. Magomedov’s current fleet comprises mostly tugboats with antique power plants, employed for tanker escort at Novorossiysk and Primorsk ports; he has declined to explain where the new fleet would come from, or why. So the announcement appeared to be no more than an advertisement that, in the current scramble for state budget and state bank funds, Magomedov has a powerful ally.
He has now followed with a placement in Bloomberg that he is thinking of making a bid to buy Australia’s GrainCorp, and must beat the takeover bid already on the table from Archer Daniels Midland (ADM) for A$2.77 billion (US$2.88 billion).
According to the Halloween despatch by Yury Humber of Bloomberg, Magomedov’s Summa Group “is raising money for a foreign grain trading acquisition and was considering an offer for GrainCorp Ltd…” Magaomodev’s group, the report goes on, “hasn’t ruled out a counterbid for Sydney-based GrainCorp, according to a third person, who asked not to be identified before plans are decided.” Finally, according to the ghost-writers at Summa, they have “submitted a formal request to VEB, the Russian development bank where Prime Minister Dmitry Medvedev is supervisory board chairman, to fund a possible acquisition of GrainCorp, said the two people, who declined to be identified because the information is private.”
Magmomedov’s management board has two highly-educated employees with the capability, and the financial motive, to turn such private information into public tipstering for which Humber and Bloomberg are well-known. The share price of GrainCorp has jumped 39% over the past ten days on the ADM offer, adding A$800 million (US$830 million) to GrainCorp’s market capitalization of October 18 of A$2 billion (US$2.1 billion). Alexander Vinokurov, the chief executive of Summa, has two economics degrees from Cambridge, while James Simons, the chief investment officer, has degrees from Princeton and Harvard. Both worked at TPG, the American raider, before they joined Summa.
The claim that they have asked for a state bank loan to top the ADM bid and buy GrainCorp hasn’t moved the markets by much. At the start of yesterday, before the tip-off, .GrainCorp’s share price was A$12.24. It dropped to A$12.21, rose to A$12.34, and settled to A$12.27 by the close. Net value added, A$6.8 million (0.5%). Kids’ stuff.
Reuters followed Bloomberg with another anonymous tip: “Summa may drop the request because GrainCorp could be too expensive, another source with knowledge of the plans added.”
GrainCorp is the privatized form of an Australian state organization originally known as the Grain Elevators Board of New South Wales, a grain storage and ship-loading company based in Sydney. Privatized for $100 million in 1992, it has bought out its local grain storage and logistics rivals; at present it has virtual monopoly on the shipment of grain produced on Australia’s east coast. . It has also expanded internationally into grain processing, bakeries, and production of malt for brewing into beer. In Australia it hauls grain from farm to port, stores about 5 million tonnes per year, operates several Australian shipping terminals, and trades about 4.5 million tonnes of wheat, barley, sorghum and canola for its own account. In global markets it is competing against Russian grain sales. ADM already holds 14.9% stake in GrainCorp.
Magomedov claimed a month ago that he wanted to promote Russian grain trading, and himself, into the big league. ““We are looking outside because Russia doesn’t have a global player in soft commodities markets. We have Glencore, Dreyfus, Cargill here, and Russia, which possesses such a powerful resource, doesn’t have its own worthy global player.”
Summa was asked officially to confirm its interest in GrainCorp, and its application to VEB for a loan. Magomedov was also asked to explain why it would be in Russia’s interest to invest state bank funds in the marketing of Australian wheat in markets where Russian-grown wheat, also financed by the state budget and banks, is for sale. Spokesman Dmitry Minenko replied that Summa will not comment.
VEB said it is not answering questions about the Summa loan matter. In September the bank said it was agreeable to lend up to $250 million for Summa to build a grain terminal in Russia’s Far East.
The state grain holding, United Grain Company (UGC), in which Summa recently took a 40% stake, was asked whether it views GrainCorp as a rival or an ally in grain sales. So far it has been unresponsive.
While there is speculation in the Australian market that jacking up ADM’s offer price may have been the motive for the Bloomberg report, there is no evidence that Magomedov or his associates intended their leak to be anything but self-promotion. In May Summa beat off domestic rivals in a tender for 50% less one share of UGC, paying Rb5.95 billion ($186 million). The only other qualified bidder, Rusagro of Vadim Moshkovich, a sugar trader, offered Rb5.73 billion ($179 million). That transaction survived legal and administrative scrutiny for alleged bid-rigging and attempted monopolization.
UGC has been created out of weak or bankrupt domestic grain operators to consolidate storage and export of grain, as Russia holds on to third place in the world’s wheat export table. With a 25% stake in Novorossiysk Commercial Seaport Company, Russuia’s principal grain export outlet, Magomedov is assembling resources to dominate the expanding grain trade on both the western and eastern coasts, challenging Glencore and the other international traders. So far, their market shares of the export have remained stable. UGC is claiming it wants to build assets to become the and a bid to take the state’s remaining 20% UGC The grain trader, set up three years ago to conduct state purchases, develop export infrastructure and ship grain abroad, will use the investment to raise handling capacity at ports to 16 million metric tons a year by 2015 and silo storage to 8.4 million tons. VEB has already promised to finance the construction of a proposed new grain export terminal by Magomedov in the Russian Fareast.
The Australian government is already under pressure from nationalist farm interests and the political opposition not to allow the US-flagged ADM to buy control of GrainCorp. It is certain a Russian bid would face even more hostility. At least two Australian government agencies, the Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC), have the power to authorize or block such a deal. On the other hand, they were passive in July, allowing Glencore to buy the Australian assets of Canadian Viterra, comprising most of the storage capacity in the state of South Australia. Glencore was also authorized to buy ABB Grain in 2009, and the Canadian fertiliser group Agrium was cleared to take over AWB, the country’s dominant wheat exporter, in 2010.
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