Loss-making vodka group slated for sale

Related tags Vodka

RosSpirtProm, Russia's state-owned alcohol producer, is to be
privatised next year in a two-phase operation expected to garner
interest from a wide range of drinks companies. But with many of
the distilleries within the group running at massive losses, the
sale is likely to mean a major consolidation in the Russian alcohol
sector, writes Angela Drujinina.

The proposal for the privatisation of RosSpirtProm will be discussed by the Russian Parliament later in October, according to Russia's Agriculture Minister, Alexei Gordeev. The privatisation process will be in two stages: "Firstly, RosSpirtProm will be turned into a joint stock company controlled 100 per cent by the state. Then, as I understand it, the shares in the company will be sold on the market to private companies."

RosSpirtProm is the name for the holding which controls more than 200 distilleries across Russia, and which account for 60 per cent of Russia's alcohol output and 40 per cent of its vodka production. Under the terms of the proposal, each of the businesses making up RosSpirtProm will be sold separately, in much the same way as the Polish state-controlled distiller, Polmos.

But, also like Polmos, many of the distilleries which make up the business are currently running at a substantial loss. According to the Accounting Chamber of Russia, RosSpirtProm's debts total some RUR2 billion (US$67m), with some companies operating at just 20 per cent of capacity, according to a source at the company, and these producers are unlikely to attract a lot of interest from the international beverage industry.

In any case, not all the RosSpirtProm distilleries are loss-making, with firms such as Samarsky Rodnik, Irkutsk's Kedr and Moscow's Krystall all turning a profit and likely to be most eagerly sought by investors.

Most potential buyers are likely to wait at least until the first phase of the privatisation is complete before taking any action, not least because the creation of RosSpirtProm JSC is expected to include the writing off of some debts and a fair amount of restructuring. Only after this will the complete list of distilleries for sale, and their price tags, be drawn up.

With such a huge vodka-drinking population in Russia, the opportunity to gain foothold there is likely to attract a number of major players to the RosSpirtProm sell-off, but memories of earlier attempts to privatise the alcohol market there could keep some companies at bay.

Back in 1992, a company called Soyuzplodoimport was granted the rights to Russian vodka brands previously owned by the state, and was subsequently acquired by an ex-pat Russian businessman who set up a company called SPI based in Cyprus. But a decade or so later, the sale of the business was contested by the Russian authorities, who argued that the previous legislators had not had the authority to privatise the brands.

As a result, the Putin administration renationalised all the brands that had been sold - most importantly the Stolichnaya and Moskovskaya brands owned by Cyprus-based SPI - and created a new Soyuzplodoimport company to handle them, a company which could now be among the leading bidders for the production arm as well.

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