Commodities slump takes a bite out of Ukraine’s richest man

Author : Alexander Sazonov

Source : Bloomberg

Ukrainian tycoon’s latest challenge is to keep his businesses afloat in conditions of coronavirus pandemic
13:22, 22 April 2020

Open source

Rinat Akhmetov has survived war, the murder of a business partner and attempts by a former comedian-turned-president to curb his monopoly. But it has come at a hefty price.

His fortune, once worth $22.4 billion, tumbled 80% over the past seven years, one of the largest declines tracked by the Bloomberg Billionaires Index. The Ukrainian tycoon’s latest challenge is to keep his businesses afloat as the coronavirus pandemic crushes industrial commodity prices.

Akhmetov’s DTEK Energy, Ukraine’s largest private power company, said last month it’s seeking to restructure more than $1 billion of debt and will shutter its main coal mining unit, which employs about 20,000 people. Prices for steel produced by Metinvest, another key business, have slumped 20% this year.

“During the next five years, the global steel market is very likely to remain oversupplied,” said Alexander Martynenko, head of research at Kiev-based Investment Capital Ukraine. “It does make sense for owners of steel-making businesses to seek diversification into more promising sectors.”

A representative of SCM, Akhmetov’s holding company, said in an emailed statement that it plans to remain focused on “core” industrial businesses, rather than expand its HarvEast agricultural operations.

Ukrainian industrial production dropped in February for a fifth-consecutive month as global trade tensions and the pandemic crimped demand for commodities, while unseasonably warm weather resulted in less consumption of electricity and natural gas. As a result, DTEK’s coal production could fall as much as 30% this year, Chief Executive Officer Maksym Timchenko said last week during a news conference.

A Survivor

Additionally, a law passed by Parliament prohibiting utility companies from cutting service to consumers during the Covid-19 outbreak has also squeezed DTEK as more customers delay payments.

Still, Akhmetov is a survivor. The 53-year-old forged a conglomerate from the ruins of the post-Soviet era, escaped prosecution and saved his empire from more than a decade of political turmoil, including Russia’s annexation of Crimea and a military conflict with Kremlin-backed separatists that battered his business.

He has jousted with President Volodymyr Zelenskiy, the former comedian who swept to power last year promising to purge Ukraine’s oligarchs from positions of influence. Zelenskiy recently nominated a former DTEK executive as prime minister, possibly signaling that his relationship with Akhmetov has warmed, though the president says it’s just a coincidence.

The government has extended Covid-related restrictions through April 24 at the earliest, including shutdowns of schools and non-essential stores. Ukraine officials predict a 4.8% decline in the country’s gross domestic product this year, while the International Monetary Fund projects a 7.7% drop.

The tough times for Metinvest, the country’s biggest steel producer, began last year with what it called a double “scissor effect,” as a drop in global metal prices, along with the hryvnia’s more than 16% advance against the U.S. dollar, hammered earnings. The situation was so bad that the company canceled its traditional New Year’s party at an upscale restaurant, according to the press office.

‘Less Promising’

The company didn’t face a shortage of orders this month, according to the press office, but may put some modernization projects on hold during the crisis.

The outlook for coal-fired energy is even “less promising” for DTEK, according to Martynenko.

“Investors are increasingly shy of dirty coal-burning technology because of tightening environmental requirements,” he said. “Moreover, Ukraine’s coal deposits are nearly depleted and very expensive to mine.”

DTEK has invested about $1.2 billion in renewable energy, but may spend less in that area as the global economy slows and government regulations make the industry less attractive for investments.

“DTEK got used to relying on itself in crisis situations and solving them,” Timchenko said. “But today our margin of safety is over.”

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