14 May 2013

Boris Krasnyansky interview to ‘Forbes’: ‘By 2015 we want to prepare one or two businesses for the IPO’

Forbes_BK_May2013Group DF Chief Executive Officer on business and Dmitry Firtash’s plans


Boris Krasnyansky, Group DF Chief Executive Officer, meets Forbes reporter in his office on the 8th floor of the Parus Business Centre. The man managing the business group with USD 6 billion revenues sits in a small and simple cabinet: you will find no expensive furniture or paintings on the walls. Every now and then Krasnyansky gets distracted by telephone calls, but generally he is firmly focused on the interview. He weighs every word and tries to avoid loud declarations.


– What kind of tasks have been set for you, and how are they being performed?


– I was invited here to turn the Group into a set of businesses with a clear strategy comprehensible for the international banking organizations and capital markets. I have done something like that in the early 2000s in Russia (during 2003-2005 Krasnyansky was Chairman of the Board of IFD Capital – Russian financial group. – Forbes). I have learned a lot there.

Before taking this position I had worked as Group DF consultant, therefore I knew what to expect. Dmitry Firtash has always had vision of what his business should evolve into. My task is to help shape this vision and work out the plan of the Group transformation. Now I also have to manage implementation of this plan. So far, I suppose, everything is in line with expectations, both mine and those of the owner.

– How long did you think over the proposal to take charge of Group DF?


– Long enough, frankly speaking. But this wasn’t an emotional decision. I have some life experience, and liked very much the work I did. I guess inclination to changes is just part of my character.

– Who managed to persuade you?


– Dmitry Firtash. It was him who made this proposition. For year and a half we interacted a lot. My affection to this business and its shareholder gradually evolved. And when I got this proposal I took it as a self-realization opportunity.

– How could you characterize your employer?


– One of the reasons why I agreed to become the Group’s СЕО was similarities between our approaches to work. Firtash does not separate business from personal life. There were cases when I was leaving the office past midnight and he stayed longer. Once we talked only business during a three-hour flight.

Firtash has an in-depth understanding and knowledge of manufacturing processes. While visiting the Group’s production units he talks to people working there. You cannot report non-existent success to him.

– What is the shareholder’s role in managing the Group’s business?


– Firtash is Chairman of the Group Supervisory Council (other Council members are Krasnyansky, Lord Raymond Oxford, and Robert Shetler-Jones. – Forbes). This strategic body considers far-reaching issues like how and where to move; what objects to choose for investments, how to build relations with partners, etc.

– There is much speculation that Firtash wishes to turn Group DF into another SCM, and that you are actively luring experienced people away from Akhmetov’s group.


– I wouldn’t compare Group DF to SCM or any other business group in Ukraine. Both SCM and Group DF have the same goal, which is to be a group of companies attractive to investors. Both groups aim for transparency and attractiveness to banks and financial institutions. It is not true that we lure their employees. Our company may hire people who used to work for SCM. But if I used to work for PwC, it does not mean that Group DF poaches PwC’s employees.

Unconsolidated business


– What is Group DF’s financial performance – revenues, EBITDA, credit portfolio?


– According to preliminary unaudited data, Group DF’s total revenue in 2012 was about $6 billion. The rest of indicators are a commercial secret for the time being. Some businesses of the Group have never been consolidated yet. We are working towards consolidation of the entire Group. I hope we will see such financial statements at the end of 2013. However, we will need time before we start disclosing this information.

– What is the Group’s flagship business?


– We divide our assets into core and non-core ones. Nitrogen business is the largest one among our core assets. The second most important one is our titanium business; the third one is represented by Nadra Bank. We hope that gas distribution will soon become another core business. To that end, we need to acquire additional shares in regional gas distribution companies which will make it possible to control and consolidate those assets.

We also have other businesses we wish to turn into core ones. For example, we are not such a big player in the real estate market yet. Some of our businesses, such as agriculture, are in the ‘embryonic’ state. But in Ukraine it is at least short-sighted for a large group not to have interests in agribusiness. Any of our non-core businesses has a chance to become a core one.

– What is your vision of the correct structure of the Group? Should all core business be part of the Group, or should there be industrial holdings with the Group acting merely as a shareholder and not exerting operational control?


– All core businesses are part of the Group anyway. As for the centralization level, there are no standard solutions. Our Corporate Centre does not engage in the businesses’ operations.

– How do you plan to develop the gas distribution business?


– We have already announced our intention to consolidate the gas distribution assets to create a really big business. We intend to establish a holding company by the end of this year. The necessary precondition for such a consolidation is obtaining permissions from antitrust authorities. Our opinion in this matter is no secret – we cannot see any violation of antitrust rules, and will stand ground in the dialogue with the antimonopoly committee. Gas distribution is a priori a monopolistic business. Any company is a monopoly in a given region.

– In November 2012, Forbes published an article about the degree of preparedness of Ukrainian financial and industrial groups for recession. Group DF stated that recession would not affect it. How could be that possible?


– Ukraine is not such a self-sufficient economy to have its own recession. There is a global recession, which, naturally, affects us. As for the actual situation, we anticipate growing consumption of mineral fertilizers in Europe in 2013. Mineral fertilizer production is the industry in which recession means a slowdown in market growth. We expected more substantial growth.

The line characterizing the market growth dynamics in Ukraine is a smooth one. But growth expectations are enormous here. So far Ukraine consumes very small volumes of fertilizers when compared to Europe. Here we have more crop yield from the same amount of fertilizers applied. Therefore this market will grow.

– A year ago, Firtash talked about an influx of imported fertilizers to the Ukrainian market. Does the government help solve the problem?


– Ostchem’s share of the Ukrainian market grew in 2012, and we hope it will keep growing in 2013. Last year we acquired UkrAgro NPK, a warehouse network, and intend to keep expanding it further. The idea is to establish agricultural supermarkets. But it will take some time. As to the role of the government, I’m not in favour of its participation in managing businesses. The best it can do is to pursue a laissez-faire policy.

– Speaking about the transfer pricing law, is it an aid or an obstacle for large-scale businesses in Ukraine?


– All countries have laws related to transfer pricing. Therefore, I think Ukraine must adopt it as well. The task of the government consists in its correct and competent implementation. I stand for a period of a well-governed gradual transition. For example, only major transactions should be subjected to this regulation over the initial period of its implementation. The respective draft law specified the annual turnover of UAH 50 million with one counteragent. This threshold is too low. It would be more reasonable to start with UAH 500 million. If the level proves to be high, it can be lowered.

Another important issue is how the “regular” product price will be determined and who is going to fix it. Entrusting it with some governmental authority would be a wrong decision. For example, the price of one of the titanium products in January of the current year is five times different from the price in January of the previous year. The tax authority may refer to the last year price and fix prices for businesses. That is why it is advisable that businesses determine the price themselves and substantiate it for respective authorities. Otherwise numerous lawsuits are inevitable.

Odessa Portside Plant, titanium and petrochemical industry


– You repeatedly declared the Group’s interest for the Odessa Portside Plant. Will you buy it on your own or together with a partner?


– We do not comment on a deal before it is closed. And in this particular case there is no decision on its privatization, and no tender announced yet.

Certainly, we are very much interested in acquiring the Odessa Portside Plant, and ready for cooperation with a partner, if it is going to be a favourable approach under privatization conditions. It can be any partner. For instance, one of the major global players.

– Firtash declared his readiness to invest USD 2.5 billion in the Group’s titanium assets. Where will such funds come from and how are you going to spend them?


– We are talking about investments in Ukrainian assets. It is too early now to talk about the origin of the money but we do intend to obtain a significant share of credit funds.

We have a detailed plan for the titanium industry development. It covers both the production of titanium dioxide and by-products, and titanium metal. There are several investment scenarios for various market development conditions. USD 2.5 billion is the maximum amount, which will become a reality the market circumstances are favourable. In 2014 we will choose a precise scenario of what we are doing in terms of our titanium program.

The global titanium market is on a rise. But in terms of the number of players and consumption volumes it is not that big. So it can develop in different ways. For instance, late last year the prices for rutile and zirconium concentrate slumped. Now they are going back up because global producers cut their production due to low prices.

Implementation of our titanium program depends not only on external markets but also on how quickly we will be able to consolidate the industry.

– This is a closed market, and difficult to operate in. In fact it is monopolistic…


– Talks about monopoly are ridiculous. In this case the market is not Ukrainian, it is global. Ukraine has huge deposits of quality ilmenite ores. The domestic titanium industry can only compete on the global market, and only following its consolidation. Standalone producers are doomed to fail. They will either be closed down due to losses, or acquired by major foreign companies to be eventually closed down. The only way these assets can have a future is through their consolidation, investments and modernisation.

Look at what’s happening on the global titanium market. Today, Russian Avisma is the global leader in titanium production. This company was allowed to quickly consolidate its assets. As a matter of fact, this one company has consolidated all of Russia’s titanium assets. Secondly, they have obtained significant support from the government.

– How can the government assist in your case?


– The government can facilitate processes allowing for consolidation of this industry.

– Does the entire Group intend to go for an IPO or will it list individual businesses?


– We want one or two of our business to be ready for an IPO by 2015. Our chemical business is the most developed one, and is best suited for public offering.

– Is Group DF interested in foreign assets?


– Of course. We may have interests in chemical businesses in Europe and elsewhere. For example, we have a trading company in Switzerland. 80% of all mineral fertilizers in Europe are sold through Switzerland.

– Insiders in the Russian chemical market say that Group DF is preparing to build a chemical enterprise in Russia. Is that true?

– We have no approved plans for construction of a plant in Russia.

– Is it true, that Group DF holds negotiations on the purchase of Lysychansk oil refinery?

– Petrochemical segment of the Group’s business is one of the most promising for us. We do wish to develop it, because petrochemical industry in Ukraine practically does not exist. But the sale of Lysychansk refinery, previously owned by ТNК–ВР, has now been put on hold. Therefore this matter is closed for us at the moment.

– In mid-February the court in Budapest recognized Mabofi, part of Group DF, as the only shareholder of Emfesz Ltd, a Hungarian gas trading company. Does that mean that Group DF wishes to supply gas to Europe?


– Renewal of our gas supplies to Hungary and Poland is not currently on the agenda. We actively protect our interests in Hungarian courts. A few years ago, our assets there were literally stolen because of the fraud on the part of the management. The Group is working to reclaim control of this company.

– How much gas do the Group’s companies consume?


– Our enterprises, together with the Odessa Portside Plant, annually consume around 6 billion cubic meters of natural gas.

– Now you have an opportunity to purchase gas for a favourable price. But in January 2013, you faced difficulties with the supplies. Have you managed to diversify your gas supplies? What has been already done?


– The gas accounts for 65-85% of the cost structure in production of mineral fertilizers. We constantly look for alternative sources of gas supply and are interested in purchasing gas extracting assets. We consider all opportunities ranging from purchasing own deposits (both in and outside of Ukraine) to long-term supply contracts.

– All private sector companies in Ukraine extract the combined 2 billion cubic meters of gas per year. Meanwhile, one state-owned company headed by Yuri Borisov, former Ostchem manager, extracts around 17 billion. Is Karpatygaz, a company contracted to Ukrgazvydobuvannia, your company?

– No, we have nothing to do with it.

– Group DF has recently acquired Inter TV channel. How much did Dmitry Firtash pay Valery Khoroshkovskiy, and what’s the percentage of shares bought?

– The information provided in the press release (that the deal was closed based on the estimated price of $2.5 billion for 100% of the shares) is absolutely true. (Krasnyansky did not answer the question about the deal value and the number of shares acquired. – Forbes.)

– Don’t you think this deal to be overvalued?


– $2.5 billion was the valuation of the parties involved. It is only for the buyer and the seller to decide whether it is cheap or expensive.

– What are your plans for Inter? Many people are curious about possible changes in the information policy of the channel and Inter Media Group as a whole.

– We want to make it a business. The channel is losing money today. Our task is to make it profitable. It can be achieved. How can we do that? We need to raise Inter’s share at least to the level it had several years ago (during 2009-2012, Inter’s share in the 4+ category fell from 18.3% to 13.8%. – Forbes). This task is given to the managers in charge of this business – Yegor Benkendorf and Anna Bezludna. They work out the strategy to be considered and approved by the Supervisory Council.



Boris Krasnyansky was born in Kiev in 1958. Graduate of Kyiv Institute for National Economy.


1993-1998 – consulting company Coopers&Lybrand, Director General.


1995 – Head of consulting at PricewaterhouseCoopers (PwC) Ukraine.


In 1997 became partner of PwC.


2001-2003 – head of management consulting service for Russia and Ukraine; head of PwC strategic consulting services division in the Central and Eastern Europe and the CIS countries.


2003-2005 – Chairman of the Board at Russian Investment and Financial Group Kapital.


2005-2012 – PwC Ukraine, Managing partner.


Since September 2012, Chief Executive Officer of Group DF.