Who Financed ArcelorMittal Temirtau’s Purchase and How Much Did Nazarbayev's Favorite Investor Receive?

Kanat Sharlapayev, Kazakhstan’s Minister of Industry and Construction, has recently revealed details regarding the successful completion of purchasing the ArcelorMittal Temirtau metallurgical plant from a socially irresponsible foreign investor. The successor: domestic businessman, Andrey Lavrentiev.

At the press conference dedicated to the deal’s closure, the minister named Lavrentiev as the new owner only after journalists’ clarifying questions. However, this was not coincidental. Indeed, two subsequent press releases of the Ministry of Industry did not indicate him either. The public thereby had the initial impression that the company had been bought out by the state. Lavrentiev was ostentatiously hidden behind the scenes.

How Much Did Mittal Get?

The main narrative, repeatedly pushed by the minister and then by his press service, was that the former owner wanted $3.5 billion for the asset, but thanks to the negotiators’ skills, the final price tag was only $286 million. Even in the realities of New Kazakhstan, this sounds like a fantasy.

The financial balancing act here is key, yet the layman understands little. Aside from the ready cash that Mittal received, Lavrentiev has been loaded with two loans: short-term for $250 million and long-term for $450 million - a total of $700 million.

The ministry's press release highlights the following information: "The transaction amount amounted to $286 million, which led to a decrease in the cost of ArcelorMittal's equity by $800 million." How could the sale of the plant lead to a decrease in its capital? Obviously, because of the dividend payment to the shareholder before the sale itself. Presumably, the aforementioned $700 million was used for payment.

Regardless, Kanat Sharlapaev and the entire negotiating team deserve a lot of praise. By the standards of a large multinational business, from the moment the negotiations began to the closing of the deal, everything went very quickly. Unprecedented decision-making speed for domestic bureaucracy.

No Outside Help, But We’ve Got AIFC

The plant turned out to be an unappealing asset. Otherwise, there would have been a foreign investor with capital and relevant metallurgy experience ready to work with Kazakhstan’s government. In a situation when the plant needs to be bought out, but there are no takers, a state media headline unwittingly described what happened the best: "The government has appointed a new investor ArcelorMittal Temirtau."

Although Andrey Lavrentiev is on the Forbes list of Kazakhstan’s most influential businesspersons, he would hardly have had 1.8 billion dollars available for Mittal’s request, nor the $3 billion that the government demanded to invest in the enterprise’s modernization in the next three years.

Lavrentiev acquired the plant through Qazaqstan Steel Group, a company created deliberately. Another company, QSG Holding Limited, was established in the jurisdiction of the Astana International Financial Center (AIFC). Through it, financing was attracted for the plant's purchase.

QSG Holding Limited has registered a bond prospectus with a total volume of $1 billion at 15% per annum on the AIFC Astana International Exchange (AIX). The conditions are notably quite market-oriented, and the potential profit of the lender corresponds to the high level of risk that comes with the entire enterprise.

The first tranche of bonds worth $355 million was issued and sold on November 20, but there is no information on transactions with them. This means that the securities were sold on the over—the—counter market. In other words, the seller and the buyer discussed all the details in advance: the volume of issued securities, the rate, the timing, etc.

A Family Man

Why Andrey Lavrentiev? His trade is the car business, whereas his education is medicine. Metallurgy is a very specific field tied to global cooperation. A no-name cannot make it there, one needs to grow into this business.

Many associate Lavrentiev's participation in the Allur group with Kairat Satybaldyuly, Nursultan Nazarbayev’s nephew. Yet, there is no evidence backing such claims. In addition, Andrey Lavrentiev's father, Sergey Petrovich Lavrentiev, incidentally an engineer by education and specialty, is deputy chairman of the board of the insurance company Victoria.

The company, in turn, is the market leader in the class of voluntary casco car insurance. This segment of insurance is actively growing due to sales of new cars on credit, including those produced at Allur group’s facilities. Banks require collateral to be insured, i.e. the car being purchased. Victoria's stakeholder, Yeldar Sarsenov also controls Nurbank. There is no need to draw further analogies, as the previous owner of the bank was Dariga Nazarbayeva, and before her — Rakhat Aliyev.

There are no such things as coincidence. Andrey Lavrentiev has no ties to the family, but to reach such a status on Kazakhstan’s Forbes list, talent and luck alone are not enough in Old Kazakhstan.

The sale of ArcelorMittal Temirtau may have been structured in such a complex way so the new owner, or the one paying for the modernization of the enterprise without ownership rights, could save face.

Anything can happen, including a technical default on the part of QSG Holding Limited, and to repay the debts, the bond buyer and the borrower will simply offset the plant's shares. I want to believe that this anonymous creditor is not the new ultimate owner of the Qarmet and that the nationalization has been done at the expense of Old Kazakhstan’s first family.

Original Author: Gulnara Bazhenova

DISCLAIMER: This is a translated piece. The text has been modified, the content is the same. Please refer to the original article in Russian for accuracy.