How the Posco Daewoo – Orexim Group transaction went on, how the grain terminal cost is estimated and what form of investing in Ukrainian ports attracts foreign companies the most, as recounted by Capital Times Managing Partner Sergey Goncharevich to Ports of Ukraine.
Recently Posco Daewoo acquired from Orexim Group its own terminal in the port of Mykolaiv. Along with it in order to finish the site’s construction, the bargainers have managed to obtain the $31M credit by Black Sea Bank of Reconstruction and Development.
How the transaction went on, what way they had the grain terminal’s cost estimated and which investment format is the most attractive for the business abroad. That’s what we have asked the Capital Times company’s Managing Partner Sergey Goncharevich who acted as Orexim’s advisor in the deal with Posco Daewoo.
What part was played by your company in the Posco Daewoo / Orexim transaction?
The company Capital Times acted as an investment advisor for the Orexim Group of companies. We do not consult Posco Daewoo Corporation but we do realise that Ukraine is their strategic direction of development.
How do you assess attraction of Ukraine’s grain port terminals for foreign investors, does the interest reduce, or vice-versa rises up?
There’s a general trend boosting globally: all large agro traders are going into logistics in order to amplify profits by closing delivery chains. There are not too many gains today from pure trading, so companies will surely build their infrastructure projects. There’s a perception that the demand would only grow.
Besides, the state is starting to work out the port concession matter, which by all means pushes the foreign investors’ concern in Ukraine.
How the value of a particular grain port terminal is defined in Ukraine (key criteria)?
Generally, there may be several approaches, and they can base on various parameters including port’s depth and logistic advantages. Comparing to a ‘greenfield’ terminal construction cost can be employed as well.
Say, you may compare it with the bargain of the Chinese company COFCO having invested $75M in a grain terminal in Mykolaiv Port on the DSSC base of 136,000 t storage capacity.
What does a seller need to profitably sell a grain port terminal?
It is needed to have an attractive, correctly prepared by reputable advisors project (including the technical, financial, and legal parts) and the team capable of implementing it in the established period and within the budget planned. This is what should be a background for the efficient talks beginning.
To what extent are such transactions interesting for banks and why?
Banks may fund such bargains as much as they gain a quality lender and guaranteed money return. Yet, major ventures are normally funded by banks consortia, considering that one bank would not wish to take all the project’s risks by itself.
In Ukraine the most popular pattern of foreign investing in a grain port terminal is establishment of a JV (i.e. the Cargill’s and MV Cargo project, or Brooklyn-Kiev and Louis Dreifus). What is it conditioned by? What is the logic of this particular kind of investment? How much is it cost-raising (or the opposite, cheapening) investments in a terminal?
Can’t say it’s the most popular pattern, though perceptible demand for exactly such a variant is explained by the investor’s strive to secure the project from risks intrinsic for Ukraine. For instance, it provides faster responding to legislation changes and the like.
All major agro traders will go to logistics
Hardly ever foreigners would build terminals of their own as they are ignorant of Ukrainian legislation peculiarities. That’s why they do need a local partner. And hence of course is their preference towards joint ventures. But market strategies depend on the company.
How long were the negotiations between Posco Daewoo and Orexim Group on purchase of the grain terminal in Mykolaiv? What phases did the negotiators face?
About two years from the first visit and until signing the agreement. In particular, the necessity of having an investment advisor is conditioned by importance of efficient communications with potential investors, especially with international public companies, taking into account ins and outs of the decision taking process, tangible culture difference, and approaches. It is advisors who are those to come ‘translators’ to relevant languages and become a vital communication link.
The phases of the talks were as normal as in any other bargains – getting acquainted with partners, due diligence and transaction documents preparation.
The €31M credit from Black Sea Trade and Development Bank is known to be involved in the framework of the transaction support. Why particularly from BSTD and not any other bank? What conditions were the funds drawn on?
The bank was maximally quick, open and ready to grant the whole sum necessary for the terminal construction for a long term, on attractive enough conditions for long-term funding.
Posco Daewoo declares that it has bought the grain terminal in Mykolaiv in order to control reliability of grain deliveries from Ukraine to Korea. But such deliveries’ reliability depends not only on availability of the elevator of one’s own in a port, but on the road or rail transport working reliability as well. Has Posco Daewoo shown interest in laying funds in logistics development in Ukraine ‘from field to port’?
Posco Daewoo intends to arrange its trading business globally and adjust the interaction with agriculture manufacturers as its basic activity. Yet, as regards the company’s plans as a whole in Ukraine it is better to ask them directly.
https://ports.com.ua/articles/kak-prodat-zernovoy-terminal-intervyu-partnera-capital-times