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INTERPIPE STARTS DEBT REFINANCING TALKS, BLAMES RUSSIA FOR DEFAULT, AS VICTOR PINCHUK BEGS PRESIDENT VICTOR YANUKOVICH FOR RUSSIAN REWARD

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By John Helmer, Moscow

Interpipe, the Ukrainian pipemaker owned by Victor Pinchuk (left), son-in-law of ex-President Leonid Kuchma (centre, right), has released its first official acknowledgement that it is in default on $106 million of debt owed to its banks. In a statement [1] yesterday on the company website, Interpipe said negotiations are under way with the banks, and that they had been informed in advance of the company’s failure to meet the repayment amount due on November 1. “The creditor banks”, according to Interpipe, “have formed a steering committee of creditors. The parties will have to agree to change the schedule of payments on the main body of the loans, as well as some other changes in the loan agreement conditions. The company plans to continue to pay interest on all borrowings in full. The operating activities of Interpipe run in the normal mode.”

Interpipe’s debts currently exceed $1.3 billion; it has less than $50 million in cash [2]. The banks, which negotiated with Interpipe for an earlier debt restructuring agreement in 2011, include Citi, Barclays, Intesa, ING, and Credit Agricole. The banks are not commenting publicly except for Intesa in Milan; it said this week it is aware of the default and is evaluating the situation with the other lenders.

SACE, the Italian export finance agency which is owed $225 million of Interpipe’s debt, is participating in the steering group. It is not clear whether holders of $200 million in Interpipe’s bond debt are represented in the bank negotiations.

The trustee for the bondholders, most of whom are connected to Pinchuk, is Deutsche Bank. In Luxembourg Interpipe is under investigation by regulators for failing to list its bonds on the Luxembourg Stock Exchange as it announced it would do by an October deadline. A Luxembourg source close to the investigation has warned that because Cyprus law governs the Interpipe holding company, a court filing may be triggered in Nicosia under the bankruptcy provisions of the Cyprus Companies Act [3].

According to Article 212 of that statute, “a company shall be deemed to be unable to pay its debts: (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding eight hundred, fifty-four euros [ €854] then due has served on the company, by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or (b) if execution or other process issued on a judgment, decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.”

A source familiar with Pinchuk’s position in Cyprus believes he is now vulnerable there to an attack from Ukrainian rivals. “The ingredients required are nothing more than a creditor entitled to more than €854; a demand notice lodged in Nicosia court; and Interpipe’s failure to satisfy the debt claim after three weeks. The banks and the Italian Finance Ministry behind SACE don’t want to see a raid on their security pledges, but if there’s the will now in Kiev, they will be as powerless to stop it as Pinchuk.”

The possibility that a Ukrainian raider is preparing to call Interpipe on its indebtedness, and force a bankruptcy sale of assets, was revealed in Kiev early this month when an unknown entity called International Investments Technology (IIT [4]) announced it has bought up trade payables owed by Interpipe to its suppliers. That debt is at least $230 million [2]. IIT confirms its published announcement of the transaction. But it declines to elaborate on the value of the transaction and refuses to confirm who controls IIT. Interpipe management is neither confirming nor denying the deal.

According to Interpipe’s latest announcement, “the major reason for a shift in the loan payments’ schedule relates to the current market situation, and specifically the drop in sales and profitability in Russia and the Customs Union (CU) countries, due to the delivery conditions change by CU for INTERPIPE pipe products. Additionally, the recession in the Ukrainian railcar construction industry, which, in its turn, has led to a drop in the purchase of INTERPIPE wheel products, has also affected the repayment schedule.”

According to Alexander Kirichko, Interpipe’s chief executive, “the company’s position as a global player will help to compensate in the regional reduction in sales. In 2014, the company will continue its diversification strategy, and it will focus on growing Interpipe’s profile in South America, the Middle East, and Europe”. Specialized billet sales are one of the product diversifications being market- tested at the moment.

Last week’s decision by the Ukrainian President Victor Yanukovich (right image, right) to align the country’s foreign and economic policy with Russia, rejecting the partnership agreement with the European Union planned for this week, has triggered speculation in Moscow that penalty duties introduced on July 1 to stop imports of Ukrainian pipes may be lifted. Mikhail Rodionov, an analyst with Rusmet, comments: “Anything is possible. Duties in any case will be reduced due to Russia’s entry into the WTO. Will there be any other measures – this is a question not only of economy, but also of politics.”

In the Ukraine Pinchuk has been the only domestic steelmaker to take a public position against the Russian alliance. Through a lobby group he calls the Yalta European Strategy (YES [5]), Pinchuk has financed an international campaign for Ukraine’s signature on the EU partnership agreement. Pinchuk has also paid for anti-Russian lobbying in Washington and London, aiming at Bill and Hillary Clinton and Tony Blair.

onenessIn Paris and on the Cote d’Azur, where Pinchuk sails his motor yacht Oneness during the summer season, Pinchuk’s lobbying has aimed at current cabinet minister Aurelie Filippetti, Dominique Villepin, a former prime minister, and others influential in French politics.

Oleg Kalinskiy, director of the Fund for Pipe Industry Development, an industry lobby group in Moscow, reveals that the executive staff of the customs union of Russia, Kazakhstan and Belarus is already considering several options for changing the treatment of imported Ukrainian pipes. Several options are possible: the antidumping duties may remain the same, may be raised or decreased. “Currently the Eurasian Economic Commission is reviewing rates of anti-dumping duties on a number of Ukrainian enterprises for some types of steel pipes of Ukrainian origin. Before the announcement of the official results of the investigation we consider it’s premature to comment.”

Pipe imports were discussed yesterday in Moscow at a meeting of steelmakers with Prime Minister Dmitry Medvedev. Dmitry Pumpyansky, the control shareholder of TMK, Russia’s largest pipemaker, attended. In the absence of a statement from the prime ministry, press reports from attendees at the meeting say there is strong resistance from the Russian pipemakers and the steelmills which supply the sheet for pipe manufacture to any move that would lift the protective import tariffs for the time being. Pipe imports were discussed with the Prime Minister, and stronger measures were mentioned, including a possible anti-dumping inquiry targeted at imports of Chinese pipes.

In its quarterly financial report [6] issued today, TMK said that in the three months to September 30, its Russian division suffered a 14% quarter-on-quarter decline of revenues to $998 million, and a 36% drop in earnings to $134 million. TMK said it is hoping for a recovery this quarter in Russian sales of seamless oil and gas pipes and line pipe. But that depends, as Pumpyansky told the prime minister Monday, on restricting imports of the types of pipes Interpipe and other Ukrainian mills export.

A source close to the Russian trade ministry in Moscow said: “Mr Pinchuk’s business model is failing and instead of paying his debts he wants to portray himself as a victim of Russia. It’s a nice excuse if he doesn’t want to pay his debts, but who believes it? Khartsyzsk [Pipe Plant of Donetsk, owned by Rinat Akhmetov] may get access to our market because of its relationship with Gazprom. But for Interpipe’s products, we wish Mr Pinchuk good fortune with his friends in the European Union. Maybe Tony Blair needs pipes.”