17.04.2008
Oleg Boyarin: “Ukrainian manufacturers now enjoy no privileges”
The Chairman of the Board of Atoll Holding and Chairman of the Supervisory Board of Eurocar CJSC has told that the company plans to implement a large ambitious project in the area of tourism and recreation, having no counterparts in Eastern Europe.
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Oleg, two foreign investors are reported to have acquired an interest in Atoll Holding-affiliated Euro Leasing the other day. Why have you decided to sell 25% of the shares and what is the transaction value?
The company had been seeking a portfolio investor that would not alter much the approaches to business administration and positioning of the company and would become a full partner. We did not consider any offers from strategic investors.
The transaction value will be made public after it is completed, but one thing I tell you for sure - the authorized capital of Euro Leasing will exceed UAH 100 million upon the completion.
Will the cooperation allow you to tap into new markets? If it will, what are those markets?
We are talking about financial markets, debt markets with lower interest rates and other vehicles of financing/refinancing the asset portfolio of a leasing company – syndicated lending by related foreign banks, direct financing by international entities such as the EBRD, and credit notes. We are planning to make the first borrowings by the summer end of the present year.
The borrowing requirement for Euro Leasing in 2008 is estimated at EUR 200 million and in a three-year term, the amounts are twice as high.
When you started manufacturing Volkswagen branded cars through opening the Eurocar Factory in Zakarpatska (Transcarpathian) Oblast, you were substantially supported by Ukrgazbank. How did you approach it?
I and the Honorary President of Ukrgazbank Vasiliy Gorbal are linked by the old friendly relationships. We know each other not just as a client and a banker but also as close friends.
Ukrgazbank both financed our project and supported us at the stage of establishment.
And how much did you initially invest in the project?
Investments in the Eurocar Factory amounted to EUR 15 million.
Does Vasiliy Gorbal have an interest in Eurocar? Is he a shareholder of the company?
As an individual, Mr. Gorbal is not a co-owner. The shares in the company are held by several legal entities, and I am the sole individual and have a minority participation in the company. MIG Ltd (International Investment Group) is the majority participant in Eurocar incorporated into Atoll Holding CJSC.
How much did you borrow and invest in the company development by yourself?
At present, it is difficult to specify the amount of the initial investments. I can tell you that if a business is started from scratch, bank lending is 50%-60% of the required amount. So we followed close to such course of business at the beginning of the project. After the business stands firmly on the ground – the project is promoted and the risk is the least, borrowings tend to reach approximately 70% of all required investments.
What was the collateral?
We were granted the loan against certain guarantees. Afterwards, the framework and dates of disbursements were determined. The loan was secured by a step-by-step release of facilities into service.
Which financial institutions do you now apply to for loans?
We are working nearly with all major banks in the country – UkrSibbank, Kreditprombank, etc. Yet no domestic bank can fully meet our needs today. Therefore, at the same time we are actively making foreign borrowings. Those are loans issued by both banks and financial entities, in particular by investment companies such as Unicredit (former HVB Bank) and DEG (Deutsche Entwicklungs Geselschaft).
Why have you not approached IPO eventually? What has been the reason?
We have mentioned that we do not exclude placing the shares in international stock exchange. However, there is no need so far to raise additional capital, as we possess sufficient assets to develop the company’s projects. It does not mean, though, that we fully decline IPO and will not think of it in the future.
Your company is engaged in assembling Skoda cars. How did the process of negotiations with the representatives of the German holding proceed from the very beginning?
Currently Eurocar is manufacturing all Skoda brand models as well Volkswagen and Seat. As far as the process of negotiations is concerned, it was certainly not easy for us to obtain necessary papers to launch our own production. We actively investigated similar operations in the area of the auto industry in Europe, USA, and Japan.
Of course, the Czech and German parties had doubts whether we would be able to implement this project in Ukraine appropriately. Nonetheless, the Eurocar Factory was built nearly in half a year. This factor convinced Volkswagen and Skoda that we were a reliable partner and would respect our undertakings.
Were there any difficulties in the production certification?
The requirements charged on us are perhaps even more sophisticated than those charged on the proprietary Volkswagen factories worldwide. All our processes are inspected by Skoda Auto and Volkswagen Group specialists.
Why has Volkswagen not acquired an interest in the company?
Any manufacturer cares that the production of its commodities is under control, so we quite closely cooperate with the German concern. But Volkswagen so far holds no stake in our company. I do not exclude the possibility of disposing shares to the German concern though. All depends on whether the parties will be resolute about such decision.
How often do Volkswagen representatives come to the factory to inspect the quality of operation?
A team of foreign experts verifies the quality system management nearly every week.
Your company has announced plans to assemble 45 thousand cars per year. In how many years is such performance expected to be reached?
We expect to attain this rate in the present year.
You are also involved in developing the Solomonovo Industrial Park to be specialized in the manufacture of auto components. How much did it cost you?
We will need some $260 million to complete the project. We are now engaging partners into this project, who will provide us with production technologies and sales markets for growth. The amount of investments will depend on the partners to be operating at the Industrial Park.
What exactly is going to be manufactured there and what financial feedback is expected from the project?
Both components and accessories for cars are going to be manufactured there, e.g. seats, steering wheels, dashboards, etc. And the feedback will depend on what companies are engaged in the project. Our holding is the project developer.
Is the Industrial Park going to manufacture components primarily for proprietary vehicles?
The products will mainly be supplied abroad, because it is not profitable to launch such business for 100 thousand cars. The Eurocar is expected to deliver an annual output of 120 thousand cars, while the Industrial Park will allow providing components for a million cars. Thus, our company will supply the products to other factories in Romania, Slovakia, and Hungary. Negotiations are also being held with manufacturers from CIS countries and other Ukrainian manufacturers of course.
Once Ukraine accedes to the WTO, the car import tax will reduce from 25% to 10%. How will this impact you?
I believe this will affect the domestic auto industry considerably. Our country has been seeking it for 15 years, not clearly knowing the effects of it though. Currently no-one knows the loss and benefit pattern. It is quite possible that after Ukraine accedes to the WTO, potential investors may become uninterested and leave for other countries, e.g. for Russia.
As regards our company, we prepared to compete in any business environment, so we are ready for a highly competitive one. We have been granted no governmental subsidies or privileges for the whole period of corporate growth.
Is the Ukrainian auto industry ready to shift to the manufacture of cars meeting Euro 3 and Euro 4 requirements?
Eurocar, as well as other Ukrainian auto manufacturers, is ready to shift to Euro 3 and Euro 4. In fact, the problem of importing cars not complying with these requirements is more relevant.
Which of the companies assembling cars in Ukraine may “drop out of the game” as a result of losing the privileges they enjoyed before our country acceding to the WTO?
Currently Ukrainian manufacturers enjoy no privileges. Upon the accession, all enterprises are likely to survive, redistributing the market shares.
Apart from the auto and construction business, what sectors do you intend to invest in?
Primarily, it is tourism and recreation, which is our new ambitious project to provide a range of services, being unique in Eastern Europe. It includes all stages from creating infrastructure to constructing hotels and releasing them into service.
In which cities and when are you going to construct hotels? Have you already got approvals for the construction?
Construction works in the Transcarpathian region have already been initiated, yet it is a long-term project requiring 5-25 years for its implementation. It will be released into service step by step.
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