ISD strengthens grip on Gdansk

Ukrainian industrialists continue to snap up production assets in neighbouring Central Europe, quietly establishing a sizable foothold in the EU. A Polish shipyard is the latest target of a leading Donetsk-based financial-industrial group that already owns two steel mills in Eastern Europe.

The Industrial Union of Donbass, also known as ISD Group, is positioning itself to get a controlling stake in the Gdansk Shipyard. In early January the group?s subsidiary in Poland, ISD Polska, signed an agreement to pay $1.7 million for a 4.8% stake in the shipyard.

The Gdansk Shipyard, Poland?s third largest, is still controlled by the state, but there are plans to privatize the majority state share in the middle of this year, according to Gdansk Shipyard CEO Andrzej Buczkowski. Exactly what percentage of the shipyard will be privatized has not been determined yet, but a deadline of June 2008 has been set.

The Polish CEO said the shipyard would be privatized through the release of additional shares, adding that the state currently holds a 95.2% stake. Buczkowski said a majority stake in the company would likely cost more than $35 million, the current estimated value of the company?s share capital.

ISD Polska Chairman Konstantin Litvinov described ISD?s plans to buy a majority stake in the Gdansk Shipyard as a “priority.” Litvinov said negotiations on ISD?s possible acquisition of a majority stake in the shipyard, which currently boasts 3,000 employees, were underway. Becoming a minority shareholder was a goal in itself that would bring immediate benefits to ISD, he said. Acquiring a share in the shipyard will help secure a market for rolled steel produced by ISD Huta Czestochowa, a Polish steel mill purchased by ISD in 2005 for around $468 million, Litvinov added.

According to Litvinov, some of Huta?s assembly lines, which fill orders for the shipbuilding industry, might be transferred to the shipyard?s premises on the Baltic Sea. Poland?s shipyards have traditionally served as major customers for that country?s steel industry.

The minority shareholding in the shipyard will also yield ISD a better view of the company?s performance and value ahead of a possible move to boost its shareholding, Litvinov added. ISD has also viewed the possibility of purchasing a majority interest in Gdynia Shipyard, Poland?s largest with 6,000 employees. Gdynia owns a 20% stake in the Gdansk Shipyard. But, according to Litvinov, the pace of negotiations have slowed down due to the large number of debts that the new owner would be expected to pay.

Buczkowski said other buyers were interested in the shipyard, but described ISD Polska as the preferred buyer from the standpoint of the shipyard, itself interested in securing a stable supply of rolled steel from the Huta Czestochowa mill.

Buczkowski said the shipyard has secured 360 million euros worth of orders for 2007.

Ukraine is ranked as one of the top 10 steel producing and exporting countries. ISD, a leader on the market posting an annual turnover in excess of $3 billion in recent years, has also expanded in recent years into Hungary, acquiring that country?s Dunaferr mill.