RFP Group, the largest company in the Russian Far East, may change of ownership

The main shareholders of the RFP Group Roman Abramovich, Alexander Abramov and Alexander Frolov want to cut their shares in the company, Kommersant reports. This refers to finding a new investor who is ready to acquire an equity position up to the majority interest. The reason is the low profitability of the timber mill due to a consistent increase in export duties on sawlogs (60% in 2020). In Q1 2020, the situation was aggravated by COVID-19, which entailed a halt in exports. Some experts estimate RFP Group value at $ 500 million, but some players consider that it will be difficult to find a buyer, despite the large AAC (4.5 million m³ / year) and access to Asian markets: Japan, China, Korea.

In 2019, RFP Group timber harvesting amounted 1.7 million m³. Production of larch veneer was 216,000 m³, spruce sawn timber was 148 thousand m³, and low-grade sawn timber was 116 thousand m³. Revenues amounted to $ 170 million.

It is assumed that the deal to attract a new shareholder will go through the repurchase of additional shares by him, the proceeds will go to the development of the company. The price of a possible transaction is not indicated, the amount of their historical costs to the asset is estimated by the shareholders at $ 350 million.

According to WhatWood agency, the RFP Group is one of the largest timber holdings in Russia, as well as the largest holder of the export quota for Far Eastern timber: 2.4 million m³ or 60% of the quota. The company is consistently included in the WhatWood rating of “Top 100 Russian timber industry companies”, ranking 14-16 position in the last 4 years by revenue.

The company has successfully implemented several high-level processing projects (constructed a mill of veneer production with a capacity 300,000 m³ / year and large-scale production of sawn timber 240,000 m³ / year, and is now completing the construction of a plant for the production of wood pellets with a capacity of 90,000 tons / year). Thus, the company has a closed production cycle.

Although the issues related with a full utilisation of forest resedues and pulpwood, WhatWood agency believes that the company has a reserve for increasing production capacities. The company is still one of the largest exporters of logs. By investing in processing and developing further deep woodworking, the company can fully realize its potential by increasing turnover by 2-3 times. In addition, according to our estimates, the company ranks 7th in Russia by AAC among all holdings and groups of companies.

Taking into account the geographical location, closing to Asian markets – China, Korea, Japan – this is a strong competitive factor. In 2012, the Russian-Chinese Investment Fund (RCIF) bought a stake in the RFP Group for $ 200 million. Now the full value of the company can be estimated at approximately $ 430-560 million (based on the generated EBITDA of the company).