VTB failed to cope with the grain

VTB is selling its stake in Demetra, the largest grain holding, to the State Investment Fund of Oman. So far, this deal has only a tactical goal: to facilitate the promotion of Russian grain for export

Recently, the country's largest state-owned bank, VTB, puzzled the grain market by announcing the sale of its stake in the largest vertically integrated grain company, Demetra Holding, which it had been building with great persistence for several years. According to preliminary information, a 45% stake in the bank is being bought by Southern Sea Investment LLC, acting in the interests of the investment fund of the State of Oman.

The deal around the strategically important holding, which houses the country's largest maritime transshipment capacities and railway grain assets, is shrouded in a veil of secrecy and leaves many questions. According to one version, VTB, along with other shareholders of the company, notorious entrepreneurs Teimuraz Bolloev and Alexander Vinokurov, simply failed to manage the grain empire. Occupying a dominant position in the logistics market and having a stable global demand for Russian grain, the trading division of Demetra Holding has remained unprofitable since its inception in 2018. The new investor must partly compensate for the drawdown. There is also a tactical task: it is assumed that when exporting grain, a company with Arab co-owners will face fewer sanctions obstacles. And the expected additional issue, through which the share will be sold, will allow the Russian owners to retain the leading role in the management of Demetra Holding's strategic assets.
Didn't even last five years

“We had a stake in Demetra Holding, less control, about 45 percent. We have implemented it. The deal was closed the other day. I can’t say who the buyer is, it is his right to declare himself, ”said Andrei Kostin, head of VTB, during the Financial Congress of the Bank of Russia. He already spoke about this possibility a month earlier, hinting that both Russian and foreign investors are interested in the asset. Last week it became known that the share was eventually acquired by Southern Sea Investment LLC, which is backed by the state investment fund of Oman.

Andrey Kostin's statement discouraged many market participants, since VTB's exit from Demetra Holding turned out to be as swift as its creation. The bank began to form the largest grain holding in 2018, when the co-owners of the Summa group, the brothers Ziyavudin and Magomed Magomedov, were under investigation in a number of fraud cases. In addition, they were unable to repay the loan taken from VTB, and part of the assets of Summa, 49% of the United Grain Company (OZK, 50% of the shares belong to the Federal Property Management Agency), was transferred to the bank on account of the outstanding debt. Analysts assumed that the bank would sell a non-core asset, but contrary to expectations, VTB began to supplement it with related ones: in 2019, it acquired the Novorossiysk Grain Terminal (NZT), a stake in the Novorossiysk Grain Plant (NKHP), two-thirds in the trading company Mirogroup Resources from the top 10 leading grain exporters (a third then still remained with the founder Andrey Daluda), and also bought from the co-owners of Rustranscom Konstantin Sintsov and Konstantin Zasov 50% plus one share in the largest grain carrier by rail - Rusagrotrans. On the basis of Mirgroup Resources, the trading company Demetra-Trading subsequently started operating.

VTB swung at the creation of the country's largest grain holding, designed to streamline the growing export of wheat. Under this ambitious project, the bank asked President Vladimir Putin to allow him to buy another quarter of OZK, as well as a stake in the Ukrainian grain trader Kernel in the port of Taman. The latter was done, but VTB did not receive permission for the first.
But even this turned out to be enough to form a monopoly: now the bank had the transshipment facilities of deep-water seaports (mostly world grain trade goes through such ports), moreover, modernized by the previous owners, NZT and NKHP; half (the other half belongs to Viterra, a subsidiary of the international company Glencore) of the Taman grain terminal complex with a total transshipment capacity of 20 million tons. Only the KSK grain terminal in Novorossiysk with a capacity of 7.5 million tons could compete with Demetra-Holding in the “deep water”, the assets of which VTB also encroached on at one time. Owning Rusagrotrans, which occupies more than half of the volume of rail transportation of grain, the holding has concentrated in its hands both the terminals and the delivery of grain to them.

“I would not say that our fears have fully come true. Everyone was afraid that a new serious player would behave too badly and restrict the access of other participants to loading at their terminals,” says Alexander Korbut, an independent grain market expert. - The last two seasons of loading went without scandals, because the largest exporters somehow received their preferences. But the dictate was felt, and the “right of the first night” for loading was for “Demetro-trading”

However, one of the leading export grain companies confirmed to Expert that the game did not always go according to the rules: “In the very first season after the appearance of Demetra Holding, Rusagrotrans had the first the largest volumes and the law allows it. That is, all major exporters had to abandon their logisticians and go to Rusagrotrans, which could double the transportation tariff during the high season. And access to another deep-water port, the Caucasus, was unexpectedly limited by sanitary standards. Middle-class exporters had only the option of transporting cars through the Taman terminals.”

However, since 2020, the Federal Antimonopoly Service has not issued a single order to the grain terminals of Demeter-Holding or Rusagrotrans regarding unreasonable price increases (the department did not respond to Expert's request), although they obviously should be regulated as tariffs natural monopolies.
"Demetra-Holding" has concentrated in its hands deep-water grain terminals and the delivery of grain to them

     Demetra-Holding received a symbolic profit of 500 million rubles last year with a total operation of assets worth more than 150 billion rubles Escape from sanctions... in your pocket

It seems that Demetra-Holding turned out to be a hostage of its own inadequate trade policy, expressed in price dumping on the market, and the sanctions only slammed the doors of the trap that made the company unprofitable. But if no one could have foreseen the sanctions, then we predicted the first circumstance when the monopoly was still being formed (see the article “Now they came for grain”, “Expert” No. 36 for 2019).

The company initially behaved strangely, trading wheat at prices below the market average. “This was declared by us as a tool to increase sales of a beginner, in fact, a grain trader,” a source close to Demetra Holding shared with Expert. “That is, the losses were planned for the sake of increasing exports and imports.” In 2021, the well-known entrepreneur Teimuraz Bolloev decided to share the burden of loss with VTB. The name of Bolloev, the ex-president of the Baltika brewing company and the ex-head of Olimpstroy (2014–2016), has previously been heard in a number of scandals related to the construction of Olympic facilities. However, the scandals subsided, and the entrepreneur became interested in agribusiness, creating the Agronova company, followed by Granum JSC, which received a 25% stake in Demetra Holding in 2021. Another 24.9% stake was acquired by the son-in-law of Foreign Minister Sergei Lavrov and the owner of the Marathon Group Alexander Vinokurov.

But with their arrival, the company did not stop dumping. As a result, according to SPARK and USRN, if last year NKHP received 1.9 billion rubles of profit with a revenue of 5.6 billion, and NZT - 2.8 billion of profit with a turnover of 5.5 billion, then Demetra Trading, although and was among the leaders in terms of grain shipments, generated a loss of 7.5 billion rubles with a turnover of 105 billion. The grain trader's debt for 2022 reached 17 billion rubles. With a total asset management of over 150 billion, Demetra Holding received a symbolic profit of 500 million last year. “All because the hopes to cover the losses of the trading division with rail transportation and transshipment did not materialize,” says Arkady Zlochevsky, President of the Russian Grain Union .

With the beginning of the SVO, the composition of the owners of the agricultural holding has changed. First, Bolloev and Vinokurov bought 5% of its shares from VTB through an additional issue, and then sold part of their shares to the newly created Valiansia company (Marathon Group got rid of 18%, how much Granum lost is unknown). The latter established the Grain Gates company, which last season suddenly entered the top 5 exporters of Russian grain, ahead of even Demetra Holding itself, which dropped from second place in the 2021/22 season to tenth in the 2022 season in terms of export volume. 23. Grain Gates, according to market analysts, sold more than 7.7 million tons of grain in the agricultural season that ended in June, while Demetra Trading sold 5 million tons at its peak last season. It is curious that the CEO of Grain Gates and the owner of 2% of its shares is the former top manager of Demetra Holding Ilya Aliyev.

“Everyone in the market understands that Grain Gates is Demetra Holding itself, that is, it sells grain that Demetra buys from farmers,” say almost all the experts we interviewed. “This is done to make it as easy as possible to export during the sanctions.” As you know, all Russian exporters are now facing difficulties in chartering ships, insuring cargo and, most importantly, in bank payments. And it was more difficult for Demetra Holding to look for workarounds due to the presence of the sanctioned VTB among the founders.
The head of VTB Andrey Kostin had ambitions to build the country's largest integrated grain holding, which would streamline the growing grain exports

     With a dominant position in the logistics market and stable global demand for Russian grain, the trading division of Demetra-Holdinga” since its inception in 2018. The head of VTB Andrey Kostin had ambitions to build the country's largest integrated grain holding, remains unprofitable

In parallel with the filing of the bank, a war was unleashed against foreign traders, who play a significant role in the structure of domestic exports. Along with Russian leaders in the grain trade, such as TD RIF, Aston, Steppe, Zernotrade and others, the top ten exporters included American Viterra and Cargill, French Louis Dreyfus. Last year Andrey Kostin proposed to the president to ban companies from unfriendly countries from buying and reselling grain, including for export, as well as from owning transshipment and storage facilities. But the head of the Ministry of Agriculture, Dmitry Patrushev, replied that Russia did not intend to "kick out" international grain traders. Moreover, Cargill, Louis Dreyfus and Viterra have announced that they are not going to trade Russian grain in the new season. Subsequently, Cargill sold its stake in the KSK grain terminal in Novorossiysk to its other co-owner, Deloports (part of Sergei Shishkarev's Delo Group of Companies), and Viterra ceded its stake in Taman ZTK to the Efko group of companies. Steppe, Aston and Rusagro previously claimed this share. Demetra-Holding, as its second co-owner, was also interested in Cargill's share in ZTK Taman. But, apparently, last year VTB was not up to buying the remaining deep-sea grain terminals, and it ceded the asset to Efko Group. To date, all foreigners have practically stopped trading on the Russian grain market.

Despite the fact that Russian agricultural holdings claimed the stake in VTB, the search for investors was mainly among foreign companies that could solve problems with ship charter, cargo insurance and bank transfers. At the same time, as VTB stated, the bank is going to sell its part to the Arab fund through an additional issue, that is, it dilutes the block of shares, increasing the share of the now main shareholders Bolloev and Vinokurov. It is possible that in the future the Omani co-owner will return the shares of VTB back.

Whether the new shareholders intend to continue the established policy of the company in the market or still try to make the trading direction profitable, it will become clear in the new agricultural season that has started recently.