Together to world’s top 5: TAIF and SIBUR in home straight of asset merger
The biggest players of Russia’s petrochemical industry agreed on the final terms of the deal on asset merger
An important event for the Russian and world petrochemical sector took place in the Kazan Kremlin on 24 September: the Tatarstan president and SIBUR Holding PJSC signed an agreement on long-term cooperation. For the effective implementation of all agreements, TAIF Group and SIBUR Holding PJSC agreed on the final terms of the deal on the merger of businesses. Read all the details in Realnoe Vremya’s report.
Russia’s biggest petrochemical company has never arrived in Tatarstan with such composition of the delegation.
The management of SIBUR Holding PJSC arrived in Kazan on Friday morning: Board Chairman Leonid Mikhelson, board member Gennady Timchenko, Vice Board Chairman Alexander Dyukov and Board Chairman of the company Dmitry Konov.
Upon arrival, the SIBUR delegation immediately headed to TAIF: they visited the current and new headquarters of the parent company where they saw buildings and offices and then participated in meetings on the upcoming joint work of companies, which are part of SIBUR Holding PJSC and TAIF JSC.
The main event was held in the Kazan Kremlin: the Tatarstan president and the government of the republic met with the management and shareholders of SIBUR Holding PJSC and TAIF Group.
A solemn signing of the agreement on long-term cooperation between the republic and SIBUR Holding PJSC became the key event of the meeting. Tatarstan President Rustam Minnikhanov and Chairman of the Board of Directors of SIBUR Holding PJSC Leonid Mikhelson put their signatures to the document. Priority areas of the joint work of the company and the republic include:
- cooperation in sustainable development, including the implementation of projects aimed to reduce greenhouse emissions and improvement of the polymer waste collection and recycling system;
- implementation of approved investment programmes;
- cooperation in key areas of Formula of Good Deeds programme of social investments at SIBUR Holding PJSC;
- creation of favourable conditions to improve the population’s quality of life through charity and sponsorship in the social sphere;
- stimulation of investment, research and development, innovative activity in Tatarstan;
- elaboration and implementation of joint projects in public and private partnership;
- implementation of projects aimed to develop links and mutually beneficial cooperation with small and mid-sized enterprises;
- training of modern professionals in gas and petrochemistry and energy.
“You assume the huge responsibility for continuing investment plans. It is also important for us that you carry on implementing big social projects: sports, public and social projects. All this is displayed in the agreement we have signed. From now on, we should move only forward,” Rustam Minnikhanov emphasised.
To implement all the agreements reached between the republic and SIBUR Holding PJSC and fixed in the contract, an agreement on the final terms of the creation of a joint company was signed in the Kazan Kremlin, in the presence of Tatarstan President Rustam Minnikhanov and Board Chairman of SIBUR Holding PJSC Leonid Mikhelson. Board Chairman of TAIF JSC Albert Shigabutdinov and Board Chairman of SIBUR Holding PJSC Dmitry Konov put their signatures to the document.
“Together with our shareholders and SIBUR shareholders, Mr Konov, we discussed if the capabilities of TAIF and SIBUR are added, we can constantly improve our joint output and the development pace using the state-of-the-art technology and equipment used in the world’s petrochemical industry, can do more to develop the economy of the republic, implement social programmes. All this is displayed in the agreement signed between the republic and SIBUR Holding PJSC. Working together, we will propel the united company to the world’s top 5 leaders in petrochemicals. To put it simply, if before the merger the state and shareholders received a ruble from SIBUR and a ruble from TAIF, they can receive up to 6 rubles from the united company. Such a responsible approach was supported by the president and the administration of the Republic of Tatarstan, TAIF shareholders, approved by the shareholders of SIBUR Holding PJSC. There was made a decision satisfying both sides, and an agreement was signed,” Albert Shigabutdinov told Realnoe Vremya’s journalist.
“We spelt out in the agreement that SIBUR continues implementing those projects and working in those areas adopted by TAIF Group. Also, we fixed that as legal entities we continue following the same tax regime that existed and make every effort to develop the production and increase the amount of taxes paid. The taxes that are paid in Tatarstan and used in Tatarstan and help residents of the republic to improve the quality of life must stay here. Finally, SIBUR is a reliable social partner in all the regions it is present, and Tatarstan won’t become an exception,” Dmitry Konov stressed.
“We witness a global milestone. A company that can be in the world’s top five leading petrochemical companies is born. We have been discussing this and walking towards this for a long time. Today we seal this deal, and a big united company is created. We thank the administration of the republic for the support. President of Russia Vladimir Putin held a meeting at ZapSibNeftekhim in Tobolsk in December 2020: now a lot of attention is paid at the top of the country that Russia sell not only oil and gas but also downstream products, products of petrochemical factories. From a perspective of these sites, logistics, markets, Tatarstan is a unique place. Only the feedstock was a big problem. We think today it has already been solved. NOVATEK and SIBUR established good contacts in creating a feedstock base, and through SIBUR we will provide all the essentials for petrochemical production in Tatarstan,” Leonid Mikhelson highlighted.
He also assured them that with the arrival of SIBUR the investment policy wouldn’t change for Tatarstan petrochemistry and it would change it would do towards growth:
“We won’t stop the projects TAIF began. This is out of the question. We will start new projects. We aren’t those who are fine with the current state of affairs. Possibilities of further growth attract us. And both in energy and area the sites in Tatarstan allow creating new factories, new jobs. And Tatarstan is also famous for top staff training potential, in all the sectors,” the board chairman of SIBUR Holding PJSC claimed.
“For us, the republic, it is very important that petrochemistry in Tatarstan continue its development. During the discussion of the merger, I asked several questions that have been answered today. The factories that are part of the united company remain legal entities before the complete end of investment projects. Moreover, the companies not only intend to implement all obligations adopted to develop the petrochemical complex, but it is also planned to make much more. Also, it is very important for the republic that companies participate in our social projects, including supporting both children and amateur sport. This is written down in the agreement. I officially claim that this deal will bring only benefit to the republic, Tatarstan citizens and the united company. As a president, our government, municipalities the factories are located in, we will provide the united company with all kinds of support and do our best to make all the agreements a reality,” the Tatarstan president emphasised.
“Today TAIF Group is entering a new stage of its development. The merger of the gas and petrochemical businesses with SIBUR will enable the company to occupy leading positions in the world market, join the world’s top 5 leaders in petrochemical production. We will have to put joint effort, use positive experience and the best practices of both sides to take leadership in the world market. I am sure that together the professional teams of TAIF Group and SIBUR will be able to achieve the goals that are set,” noted Director General of TAIF JSC Ruslan Shigabutdinov.
Tatarstan and SIBUR — strategic partners and friends
“SIBUR is our strategic partner, we are friends, we not only cooperate,” Tatarstan President Rustam Minnikhanov stressed at Russian Energy Week forum in Moscow as early as 2017.
In November 2018, the Tatarstan president visited SIBUR-Tomskneftekhim research and development organisation where an agreement on cooperation with Tatarstan businesses was signed, first of all, with petrochemical companies. In late winter of 2019, Rustam Minnikhanov went to Tobolsk — the site of ZapSibNeftekhim petrochemical complex that was still under construction where he highly praised the scale — the quality and the speed the Siberians were working with.
In 2019, SIBUR and Gazprom returned to the discussion of the construction of a gas refinery in Tatarstan, which started as early as the late 1990s. A gas pipeline through which huge amounts of wet natural gas with high content of ethane has been pumped from the Far North since the 80s is just 10 km far from Kazan.
“We are interested in this project. Imagine, wet gas that costs as much as usual gas is pumped today. And it is profitable for the country, for Gazprom, for everybody to send all this wet gas through a pipe and build a gas refinery. We discussed this decision a lot, we are at the forefront, I am confident that this must work,” Rustam Minnikhanov claimed that the Tatarstan administration approves the project.
In September 2021, it became known that SIBUR and Gazprom finished working on the technical and economic feasibility of a joint gas refinery in Tatarstan. Board Chairman of SIBUR Holding PJSC Dmitry Konov reported on this. He also noted that the feasibility study was under consideration. TAIF Group stressed that the new gas refinery wouldn’t have problems with product sales — ethane. Kazanorgsintez PJSC uses it as feedstock. And the complex is interested in a bigger amount of feedstock.
Also, expanding existing capacities, given the upcoming modernisation of the Orenburg oil refinery, which also promises a rise in ethane supplies, KOS is ready to build a new ethane refinery and refine gas liquids into ethylene and propylene and build capacities for their further processing into end products — polymers.
TAIF Group and SIBUR also have long-term business and friendly relations. So SIBUR has been supplying feedstock for Kazanorgsintez for many years. TAIF JSC Board Chairman Albert Shigabutdunov has said this many times.
“SIBUR has a lot of products that are always easier to sell for them to us: they shipped quickly, received money fast, moreover, there is always a market price both for export and us,” he noted in an interview with Vedomosti in 2016.
In 2019, in another interview with Vedomosti, summarising the results of the previous year before the general meeting of TAIF JSC shareholders, Albert Shigabutdinov (Editor’s note: then director general of TAIF JSC) shared that TAIF didn’t rule out the possibility of inviting majority shareholders, and SIBUR was mentioned as one of the possible candidates. Moreover, Albert Shigabutdinov himself noted that if he were a potential investor, he would buy shares of TAIF JSC, not those of separate companies that are part of Group of Companies. Time showed that SIBUR Holding PJSC thinks the same.
TAIF and SIBUR: bound by one goal
It was planned that the merger of the petrochemical and energy businesses of TAIF JSC and SIBUR Holding PJSC would consist of two stages: 50% and one share of TAIF JSC (Editor’s note: the parent company of Group) were supposed to be exchanged for 15% of the united company. The remaining stock of TAIF JSC was consequently planned to be purchased by the united company. However, the sides agreed on an early option exercise by signing a corresponding agreement.
“We signed an agreement on the final terms of the deal on the merger of SIBUR and TAIF. Both companies’ shareholders agreed that the option of the other 50% of TAIF shares was exercised early, and the deal on 100% of shares was made. Working together, we understood that from a perspective of the development of enterprises, acceleration of investment programmes, possibilities of work on social programmes in the republic and optimisation of feedstock supply amounts, it was much more effective to exercise the option and create the united company at once. Since we see more advantages in such a decision, an agreement was signed. It will be profitable for the united company, the employees, the republic. To fulfil these obligations, SIBUR issues bonds that are handed over to TAIF shareholders. So during a couple of days the procedures related to the finalisation of the deal will take, the united company will consolidate 100% of TAIF JSC shares, which consists of petrochemical and energy enterprises,” Dmitry Konov told Realnoe Vremya.
The united company, as experts think, already produces about 70-73% of Russian polymers now. Ongoing and scheduled programmes designed to increase the production capacity and expand the assortment of products promise to reinforce the position of the united company in the world market in the foreseeable future.
“Our agreements with both the TAIF shareholders and the Republic of Tatarstan have several key moments: we continue implementing TAIF’s investment programme. We are aware of those projects that are implemented and see what we can do there. We will unite our efforts to implement them, including the experience that SIBUR and TAIF Group of Companies have. From a perspective of the partnership, we spell out that SIBUR continues those projects and areas TAIF Group of Companies has. It is important for the republic too. It is also important for us as a united company. We also understand that this is crucial for TAIF. We agreed that from the point of view of legal entities the enterprises keep following the existing tax regime. We put effort to develop and increase taxes. In any case, these taxes that are paid in Tatarstan help Tatarstan residents to have a better life. We think it is a profitable deal. SIBUR continues being a reliable partner for different regions and Tatarstan.”
“SIBUR Holding is the largest company in gas and chemistry. By uniting our efforts, we will create a company that will definitely be in the world’s top 5 largest gas and petrochemical companies. The SIBUR colleagues have huge professional expertise in polymers, while we do in rubbers and copolymers. We will organically complement each other,” Director General of TAIF JSC and Chairman of the Board of Directors of Kazanorgsintez PJSC and Nizhnekamskneftekhim PJSC Ruslan Shigabutdinov commented for Realnoe Vremya during the preparation for the finalisation of the deal this May. He also added that the country will also seriously benefit from this: a fall in costs, synchronisation in new developments, smart organisation, a balanced approach to feedstock supplies will allow the companies and the factories to ramp up production, expand the existing capacities, which is products, revenue, taxes, salaries, rewards, stability and reliability.
Board Chairman of TAIF JSC Albert Shigabutdinov is convinced that the further development of the united company will be much more effective and faster than that of each company separately. We should remind you that the development strategy of TAIF Group’s petrochemical and energy companies is more than 30 large-scale projects with a total of 1,8 trillion rubles of scheduled investments through 2035.
“The united company will have by far enough resources to implement TAIF’s programme. It became the foundation for the decision to work jointly and unite the petrochemical and energy businesses. SIBUR confirmed that an agreement with related guarantees will be signed. Both SIBUR and TAIF assume the responsibility for implementing the programme approved by TAIF, NOVATEK, the government. To compare, over 30 years of its business, TAIF Group has invested over $20 billion in the development of its companies, while here the investment in 10 years will be $20 billion,” Albert Shigabutdinov emphasised.
Before the final merger, not only the management but also leading specialists of Russia’s two largest petrochemical companies established close contacts. They actively exchanged delegations, regularly visited each other’s production sites, familiarised themselves with processes and technology.
The decision on the deal took more than 10 years
The merger of the businesses of TAIF Group and SIBUR Holding PJSC is no surprise. If one carefully studies the history of relationships of the two largest petrochemical manufacturers, it is not hard to notice that the company that should actively compete in a fight for outlets were attracted to each other a long time ago.
“The first idea that this should be done was born 10 years ago. SIBUR made big investments in the feedstock base. These companies have a similar spirit: they aim at the latest investment projects, making new products. Mr Minnikhanov said that we will see the results of the merger in 3-4 years, not 10 years. The meeting Mr Putin held in Tobolsk when he said it was necessary to develop gas and petrochemistry somehow prompted, and they decided and agreed,” Chairman of the Board of Directors at SIBUR and Board Chairman of NOVATEK PJSC Leonid Mikhelson reminded us this April, immediately after signing the agreement on intentions of a merger.
The meeting Leonid Mikhelson mentioned was on 1 December 2020. Representatives of all gas producing and gas and oil refiners of Russia participated in it via teleconference (Editor’s note: the novel coronavirus pandemic forced the organisers to hold the meeting online). Director General of TAIF JSC Ruslan Shigabutdinov also took part in it.
Russia’s president held the meeting on the strategic development of the gas and petrochemical sector of Russia. The head of the country stressed once again: “Russian gas and petrochemistry have huge growth potential, Russia’s president noted. We have everything to realise it: big feedstock reserves, state-of-the-art technology, qualified staff.” He also singled out that “it is necessary to more actively promote Russian petrochemicals inside the country and abroad, increase the efficacy and volumes of production.”
In April 2021, in the presence of Russia’s Vice Premier Alexander Novak and Tatarstan President Rustam Minnikhanov, Board Chairman of SIBUR Holding PJSC Leonid Mikhelson, Director General of TAIF JSC Ruslan Shigabutdinov, Russia’s two largest petrochemical holdings announced the readiness to unite the efforts. A milestone document was signed at the headquarters of NOVATEK in Moscow.
“This will be an additional driver to develop the whole sector. The growth rate of gas and petrochemistry around the world is up to 1,5 times faster than the growth rate of the world economy, there are huge prospects. Our country has massive hydrocarbon reserves and should have leading positions in world markets,” Russian Vice Premier Alexander Novak highlighted immediately after the signing of the agreement.
In July 2021, The Federal Antimonopoly Service of Russia (FAS) granted the request of SIBUR Holding PJSC to merge with JSC TAIF through an exchange of shares, thereby approving the conclusion of the deal.
“If all conditions of the department's order are met, the conclusion of the deal will strengthen Russia's position on the world market of petroleum products and petrochemistry while fully satisfying the interests of the domestic market," the agency stated on its website.
Albert Shigabutdinov, the chairman of the board of directors of TAIF JSC, has repeatedly stated that TAIF never had plans to take over these or other assets completely.
“TAIF is part of the company on market conditions that needs an impulse for development, and on a planned basis, with a clear elaboration of long-term development programmes, it is actively working to increase its economic efficiency, strengthen the production and material-technical basis, improve technologies. But when a business is firmly on its feet, it either acquires independence and becomes 'autonomous', or is transferred on market conditions to a new owner who is ready to continue its development. This was the case with the TVT television and radio company, insurance and banking fields, TAIF-Telkom mobile operator and a number of other businesses," Albert Shigabutdinov reminded in a recent interview with the correspondent of Realnoe Vremya in one of his conversations.
After the collapse of the USSR and the economic failure of the 1990s, the unique petrochemical enterprises — Nizhnekamskneftekhim PJSC and Kazanorgsintez PJSC — were almost auctioned in parts. The power industry did not have the means to upgrade its capacities and was barely making ends meet. TAIF Group not just managed to save the production for the republic and Russia. Today, the enterprises are firmly on their feet: the material and technical basis, capacity, assortment and production output have been increased significantly. People working in production are confident in the future and receive decent wages. TAIF Group has fulfilled and exceeded its main task in relation to the petrochemical and energy businesses.
“From the beginning of the 2000s, TAIF received a lot of offers from various companies, including from foreign ones. Our main condition was to guarantee the implementation of all development programmes initiated so that the companies would continue to increase production capacities and volumes of work, produce more in-demand products and bring maximum economic effect and income to the state, the republic and the shareholders of the Group. In general, there were proposals to maximise the available capacity and get all possible profit and stop there, but not invest in further development in any way. Therefore, the negotiation processes were delayed. As a result of many years of negotiations, discussions, approvals between companies and with the leadership of the republic, after a thorough study of each other, a multifaceted agreement appeared through the joint efforts of TAIF and SIBUR, one of the main conditions of which was the guaranteed implementation of the strategic development programme of TAIF Group, Albert Shigabutdinov explained to Realnoe Vremya.
The plans of the merged company are more than just ambitious. In particular, we are talking about becoming a truly public company, whose securities would be traded on the world's leading exchanges. It was announced that the IPO — the first public sale of shares of the merged company, is planned for 2022.
SIBUR is the largest integrated petrochemical company in Russia and one of the most dynamically developing companies in the global petrochemical industry with more than 17,000 employees. The unique vertically integrated business model allows SIBUR to create highly competitive products that are used in the production of consumer goods and automobiles, construction, energy, as well as in chemical industry and other industries in 90 countries around the world.
SIBUR processes the by-products of oil and gas production and thus contributes to the reduction of CO emissions from their combustion.
SIBUR's revenue for the last 12 months amounted to $8,8 billion, EBITDA — $3,7 billion (as of 30 June, 2021). Over the past 10 years, SIBUR has implemented a number of large-scale investment projects worth more than $21 billion.
TAIF JSC is the parent company of the largest non-public Group in the Russian Federation. TAIF JSC was established in August 1995.
The Group operates in many areas, the key of which are the following: oil and gas processing, chemistry, petrochemistry, power engineering, investment activities. The enterprises in the field of chemistry and petrochemistry of TAIF Group produce 581 products, about 40% of which are exported.
TAIF Group is one of the largest producers of plastics and the largest producer of all types of rubbers in the Russian Federation, and in the production of isoprene rubber — the largest manufacturer in the world.
The contribution to the development of the country, including tax payments, social expenditures, environmental protection, labour and industrial safety, as well as investments in the development of the Group itself in 1995-2021 amounted to 2,5 trillion rubles, of which more than 285 billion rubles on a charitable basis.
According to the Development Strategy, TAIF Group have the plans, which are currently under implementation, to enter the production of marketable products in the amount of more than 1,7 trillion rubles a year by 2035, the amount of tax payments to budgets of all levels will amount to more than 215 billion rubles a year.
To implement the Development Strategy, which includes more than 30 large-scale investment projects, a huge amount of investments will be required, the amount of which over the next 15 years are going to amount to more than 1,8 trillion rubles.
The Group's net revenue for the last 12 months amounted to more than 720 billion rubles (as of 30 June, 2021).