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By John Helmer in Moscow

Russia’s fast-expanding shipping mogul, Roman Trotsenko, chief executive of the state-owned United Shipbuilding Corporation (USC), has told Fairplay that reports he is about to buy Nordic Yards, or invest in a joint venture, are false. That may be true; or then again, Trotsenko may be bargaining over the purchase price.

A spokesman for Nordic Yards told Fairplay this morning that talks are under way with USC: “We are talking about strategic cooperation with USC.” Asked if the talks are focused on a joint venture or an equity sale, Tina Mentner, Nordic’s representative, replied: “It could be a joint venture or it could be an equity arrangement.”

Last Friday, the international maritime media picked up a rumour from Moscow claiming Vitaly Yusufov, the owner of Nordic Yards (formerly Wadan), was about to flip his asset to the Russian state in a sale to USC. Trotsenko has recently been talking up the possibility of joint-venture and equity deals outside Russia, allowing USC to establish itself in the Ukraine by buying state-owned but struggling Zorya-Mashproekt of Nikolaev, a gas turbine engine builder, and More FSK, a builder of high-speed combat and recreation boats. So the idea of acquiring the east German shipbuilding company, which is already Russian owned and dependent on Russian ship orders, is in principle no surprise.

Yusufov reportedly paid €41 million (then $56.3 million) for Wadan, renaming it Nordic, in 2009. At the time, Wadan included the former Aker Yards shipyards in Wismar and Rostock-Warnemünde, along with the former Aker Yards Ukrainian yard, renamed Wadan Yards Okean.

Yusufov is the son of the influential Igor Yusufov, a Kremlin operative in the energy and metals sectors, who once supervised the precious metals sector at the Ministry of Industry, and then ran the State Reserves Committee, the state agency responsible for certifying the reserves of Russia’s mineral deposits, oil and gasfields. Yusufov then became federal energy minister for three years until 2004; he is now a member of the Gazprom board.
In 2006 Yusufov junior, then 24 years old, took a job as head of the Mosccow office of Nord Stream, the Baltic Sea pipeline being completed now to carry Gazprom gas to Germany, France and The Netherlands. He resigned from that job last August to take charge of Nordic Shipyards.

On the Nordic Yards website, Yusufov junior says: “As the new owner I have taken over the shipyards in stormy times. It is my aim to build on their outstanding achievements as one of the world’s leading manufacturers of state-of-the-art special ships and place Nordic Yards on a stable long-term economic footing. I am putting every effort into this together with a strong team of experienced shipbuilding experts. Together we are doing everything that we can to ensure that our company can further expand its excellent market potential as a technology leader in the field of special ships. In September 2009 Nordic Yards resumed production at the two shipyards. Now it is our highest priority to acquire new contracts. Here we are focusing in particular on the Russian market.”

Before Yusufov’s purchase, Wadan was 70% owned by FLC West, a closely held Russian company controlled by Andrei Burlakov. He had bought the stake from South Korea’s STX a year earlier; STX retained a 30% stake in Wadan. In February of 2009, Wadan reported that it had received a €180 million credit facility provided through KFW IPEX-Bank Gmbh and Deutsche Bank AG and underwritten by the German Federal Government. At the time, the shipbuilder had 12 ships on order.

FLC West has been described in the Financial Times as “a mysterious Russian investment company which promised to find the yards substantial orders.” The mystery stems from the fact that FLC West is an investment holding, rather than an asset manager or operator; and that Burlakov (left) and his associates are relatively non-transparent. Burlakov’s name appears at the tail of strings of purported and alleged associations with Russians from St. Petersburg charged with money laundering in Spain. Burlakov isn’t charged, and denies the alleged associations.

At the end of 2009, STX’s balance-sheet valued its stake in Wadan at 306 million Norwegian kroner ($47.5 million). Correspondingly, FLC West’s stake should have been valued at $110.8 million. Six months later, when FLC West reportedly sold out to Yusufov, the transaction price was roughly half. But by then, Wadan was reported to have debts of more than €270 million.

Yusufov junior and senior were reported at the time to have negotiated an agreement with the government of the German state of Mecklenburg-Western Pomerania, which was one of the shipyards’ major creditors. The German business media reporting on the transaction treated the principal in the deal as Yusufov senior. That was also the presumption in August of 2009, when German Chancellor Angela Merkel discussed Russian investment in Germany with Prime Minister Vladimir Putin and President Dmitry Medvedev (ahead of the German parliamentary elections, which took place on September 27. Merkel, whose constituency covers the shipyards area, won her seat and returned to government).

“The contracts are signed and sealed,” Gerd Lange, a spokesman for the economics ministry in Mecklenburg-Western Pomerania, announced on August 18. Referring to Merkel’s meeting with Medvedev the week before, Lange added: “That meeting between the chancellor and the Russian president was very important. It shows that the Kremlin is supporting the investment in Wadan.”

The German version of what the Kremlin had agreed to was that Yusufov senior was their man, and that his undertakings — to save 1,600 of the 2,400 jobs at the Wadan shipyards, and to use the yards to build icebreakers and Arctic-class gas tankers for Gazprom’s fleet company – would be underwritten by Medvedev and Putin. Asked whether Yusufov had paid too little for the takeover, Lange also added: “No. Look at the state of the shipbuilding sector worldwide. It is not in good shape. Mr. Yusufov has paid a fair price.”

It thus seemed clear a year ago that Yusufov was fronting for a larger and more reliable Russian group than Burlakov had been able to put together the year before. Less obvious was the role the Kremlin envisaged for the then owner of two of the leading St. Petersburg shipyards, Northern and Baltic, Sergei Pugachev. When Yusufov replaced Burlakov at Wadan, it was speculated that Pugachev was behind Yusufov. Lucky for Igor, that wasn’t where Pugachev was, for the latter has himself topped into insolvency this year. Pursued for defaulted debts by the Central Bank of Russia, he is being forced to cede control of his yards to Trotsenko and USC, at the latter’s price.

Pugachev is one of the only oligarch-sized figures in Russia to be facing a Kremlin-decided break-up of his assets, since the 2008 crash put most of the oligarchs in hock to the state bailout banks. But since he is facing not only Trotsenko, but Trotsenko’s patron, Igor Sechin, the deputy prime minister in charge of oil, mines, and shipping (also board chairman of USC), Pugachev’s defeat is not surprising. The only other oligarch-sized figures to lose their assets since the crisis have also been out of favour with Sechin – Dmitry Rybolovlev, the former controlling shareholder of potash miner Uralkali; and Vadim Varshavsky, the former owner of the Estar group of steelmills. Rybolovev sold his control stake of Uralkali last month to a syndicate which is holding the asset for a merger with Silvinit, another potash producer. Varshavsky’s steelmills have been taken over by Mechel and a steel distributor in central Russia. Since USC sources acknowledge that Sechin is closely supervising Trotsenko, there is equally little surprise that Sechin can dictate what the Yusufovs may do, and at what price.

According to Moscow investment banks, the Yusufov duo is now hoping to double their money on the back of a rise in Nordic’s value and order-book. But there has been speculation in Germany that Yusufov’s connexion with Gazprom, and also with Norilsk Nickel, would not be enough to secure the volume of new shipping orders to enable Nordic to clear its debts and turn a profit. Jakob Schirmer wrote recently for a Berlin think-tank publication, Atlantic Community.com, that “the support of the Chancellor and her Russian colleague in investing in more than one thousand new jobs is commendable and of course, not the problem. It is also not a problem that the Wadan shipyards are coincidentally located near to Merkel’s electoral district. This is probably just politics in the election campaign. However, rather problematic is that the new Wadan investors can hardly be described as transparent. It is quite remarkable that the media did not dig deeper and haven’t clarified who exactly stands behind Igor and Vitaly Yusufov, the men involved in the investment. According to the media, the Yusufovs only appear as intermediaries for a pool of Russian investors… In that case, will Wadan actually produce the necessary ships? Ominous further orders by Norilsk Nickel and the Gazprom affiliate Gazflot were referred to in the media and ought to secure a prosperous future for Wadan. That is all fine but in fact neither Gazprom, Gazflot nor Norilsk Nickel have ordered any single ship from Wadan.

Moscow maritime analyst Alexei Bezborodov told Fairplay he believes the price for a deal between Nordic and USC has been exaggerated, but that Russian state banks may be persuaded to finance the deal. “I hope”, he adds, that “Trotsenko has enough common sense not to buy into Nordic Yards”.

Trotsenko’s spokesman, Igor Ryabov, says: “We were not negotiating with Nordic Yards to purchase it or create a joint venture. Basically, we asked them to explain to us some of their technological processes, and they gave us some advice.”

Mentner for Nordic says otherwise. Sale and joint venture options are on the table, she told Fairplay. “It hasn’t been decided yet. But this is what the companies are talking about.”

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