The investment arm of Rostec Corp., the conglomerate headed by the President Vladimir Putin’s long-term ally Sergey Chemezov, is rethinking its business strategy after U.S. and European sanctions put a halt to its ambitions of global expansion.
With stakes in producers of goods from smartphones to gas turbines to titanium, Rostec is focusing on its Russian businesses that may find demand in markets such as India, China and Japan, according to the chief of the investment division.
To boost the value of some of Rostec’s hundreds of businesses and improve management, the holding company established RT-Business Development, led by former Swiss hedge fund manager Andrey Korobov. He’s aiming for a 50 percent jump in the value of the assets to over $1.5 billion next year, Korobov said in an interview in Moscow.
“Sanctions limit our access to funding for our projects,” Korobov said. The measures are confining Rostec’s main projects to Russia: Korobov visited 40 African countries looking for investment ideas but ended his search after the U.S. and Europe imposed penalties on the company as the Ukraine conflict flared up last year.
Rostec is seeking to move beyond reliance on Russia’s mineral wealth. Still, it plans to levy resources to bring in foreign partners and export to meet demand in Asian markets. RT-Development is planning an ammonia and urea plant in Yakutia with India’s Global Steel Holding Ltd. and is working with China Shenhua Energy Co. to build a thermal coal mine in the Amur region.
The urea plant will have capacity to produce more than 1 million tons per year, which will be shipped to India. Rostec will help secure tax benefits and agreements on gas and transportation fees as the holder of just more than 25 percent in the project, according to Korobov. It isn’t putting up any cash to help cover the almost $1.6 billion project costs, which a group of Indian banks will help finance, he said.
For the coal project, the partners may build a utility to supply energy to China, rather than the fuel, Korobov said. China’s northeast faces a coal shortage in five years, making the project timely, he said, citing Shenhua.
Together with Russian billionaire Alexander Nesis’s ICT Group, Rostec plans to start a processing plant for rare-earth metals at the Tomtor deposit in Yakutia in 2019. Capital expenditures will be less than $500 million, Korobov said. That compares with ICT’s estimate of $1 billion in 2013 before the partners streamlined the project and ruble depreciation lowered costs in dollar terms.
The plant will make Russia self-sufficient in rare-earth elements used in wind turbines and hybrid cars. It plans exports to Japan and possibly China, Korobov said. The state corporation holds 25 percent plus one share in the project.
Outside Russia, RT-Business Development is involved in energy projects in Uganda and Pakistan. The corporation led a group of investors, including Russia’s Tatneft PJSC and South Korea’s GS Engineering & Construction Corp., to win Uganda’s tender to build a more than $3 billion oil refinery. The plant is supposed to open in four years with capacity starting at 30,000 barrels per day. The partners have found $120 million financing for the initial stage, Korobov said. In Pakistan, the company is leading a group building a gas pipeline.
The investment unit sees additional opportunities at home as Putin pushes for substitution of imported products and the collapse of the ruble supports exporters. It’s in talks with a number of telecommunications companies “to gradually switch them”’ to equipment, software and IT services offered by Rostec’s units, Korobov said, without identifying the potential customers.