Battle for control over Rosava leaves tire maker shuttered
The future of what once was Ukraine`s largest producer of automobile, truck and heavy equipment tires looks bleak. Without the raw materials it needs to make tires, its production facility has been closed and its workers are idle. Managers have seen the business go through so many legal twists and turns in the past four years that they claim not to know for sure who actually owns the plant today. Even the company’s chairman, who owes his position to a court decision rather than to shareholders, is acting as a caretaker.
The Rosava tire manufacturing plant in Bila Tserkva, about 80 miles from Kyiv, was deeply in debt in 1998 when the government, its majority shareholder, entered into a joint venture with Amtel, a multinational tire and rubber company with ties to Russia and Singapore. In exchange for its principal asset – the tire manufacturing plant – Rosava received a 49 percent stake in Rosava JV. Amtel contributed cash and gained control of the firm. It also became a primary supplier of raw materials to the plant, as well as a competitor, since it owns tire manufacturing interests in Russia.
While the joint venture kept the tire plant operating, it did nothing for Rosava’s creditors, who sought to have the company declared bankrupt and seek repayment. The courts agreed, declaring Rosava bankrupt and ordering that the company’s stake in the joint venture be sold.
The Tekt brokerage firm sold the stake on behalf of state bankruptcy liquidators in May 2001 for $793,000. The buyer’s identity has not been disclosed, but analysts say the shares sold for far less than the $15 million to $20 million the interest was worth.
The low sale price was a blow to the State Property Fund, which had hoped to generate significant revenue from the privatization sale of the state’s 75 percent stake in the original Rosava.
Rumors of a bargain sale have resulted in an ongoing investigation by the General Prosecutor’s Office. An appellate arbitration court invalidated the sale in November 2001, but analysts say the ruling can still be appealed.
Bankrupt and stripped of all known assets, Rosava raised eyebrows last August when it said in a news release that it was looking for an investor, and hinted that it was in talks with manufacturers including Michelin, Continental and Goodyear.
Meanwhile, the joint venture hasn’t fared much better. While Amtel retains the majority stake in the venture, the identity of the other party is anyone’s guess. Volodymyr Lynyk, who is acting as chairman of both Rosavas, says that even he doesn’t know precisely who his employers are.
“I don’t know who controls [the 49 percent share],” Lynyk said. “Its up to the courts to decide. I can’t comment on this issue anymore.”
Given the state of affairs at both companies bearing the Rosava name, it seems unlikely that a foreign investor would want to come anywhere close anytime soon.
Adding to the plant’s woes, the joint venture’s majority partner, Amtel, halted the supply of raw materials last month, an action that resulted in the factory’s indefinite closure on Oct. 1.
“The plant is not operating, and probably won’t resume production until at least Oct. 21, when new supplies arrive,” Lynyk told the Post on Oct 11. When production halted on Oct. 1, management said that production would resume by Oct. 11.
Lynyk blames the gap in supply on Ihor Maly, who the SPF appointed chairman of the original Rosava company for several months last summer. Lynyk said that Maly sabotaged the joint venture and was behind Rosava’s search for a strategic investor.
“It was a naive move,” Lynyk said. “No investor is interested in Ukraine’s tire market now, let alone Russia’s tire market. We have been in talks with them for five years now. It’s too early for them to come to Ukraine because of the country’s already tainted investment climate and this scandal is not helping.”
Mykhailo Chechetov, deputy chief of the SPF, which claims to manage the government’s 75 percent stake in the original Rosava company, admits that the details of what is happening are fuzzy.
“It’s a very complex and difficult situation,” Chechetov told the Post.
Andry Dmytrenko, an analyst at Dragon Capital doubts any serious investor would consider Rosava at the moment.
“We don’t see any interest from a serious investor until the current conflict subsides,” Dmytrenko said. “It is still not completely clear who owns or who is managing the joint venture, but the presence and strong grip of Russia’s Amtel group over Rosava’s business is felt.”
Management under fire
The Rosava company has also had trouble at the management level.
During a July 19 shareholders meeting, the SPF ousted Lynyk, who concurrently has headed the joint venture since its founding, replacing him with Maly. SPF representatives maintained that Lynyk, who had been at the helm of Rosava since 1997, should be removed because he was under investigation by prosecutors looking into the controversial sale of the 49 percent share in the joint venture. They also said that they disliked Lynyk’s management style.
“The management of the company has created all sorts of problems,” Chechetov said.
The courts intervened, and in September, the July shareholders meeting was invalidated and Lynyk reinstated. Then, on Sept. 24, Kyiv’s Svyatoshyn Court forbade the joint venture from holding a shareholders meeting set for Sept. 27, where Amtel planned to fire Lynyk as chairman of the joint venture.
The meeting was rescheduled for Nov. 19.
Meanwhile, Amtel appears to have fallen out of favor with the SPF, which announced Sept 26 that it had launched an inquiry into Amtel’s management of the Rosava joint venture.
“It may be necessary to liquidate the joint venture,” the SPF’s Chechetov said, adding that such a decision would ultimately rest with the government, which formed the joint venture.
Chechetov said that while Maly was with Rosava during the summer, he had found Lynyk’s work at the joint venture unsatisfactory.
Production halted
The latest twist to the story came on Oct. 1, when the plant halted production. Amtel’s representatives told Interfax‑Ukraine that it had stopped supplying raw materials because the plant’s management had decided to find other suppliers.
Lynyk denied having ordered Amtel to stop sending supplies. He blamed the development on Maly, but did not elaborate.
Amtel was unavailable for comment.
Dragon Capital’s Dmytrenko said the conflicts within the company and joint venture, as well as the shortage of raw materials, had forced Rosava to close. The factory had been supplying tires to Russia’s AvtoVAZ, which consumes about 17 percent of its output.
If Amtel’s ties with Rosava are severed, the tire company’s exports to Russia could suffer. Amtel controls several Russian tire manufacturers, and is a major supplier of tires in that country.
Lynyk said the plant does not want to end its relationship with Amtel, but might seek other raw material suppliers.
“Amtel has helped the plant tremendously,” he said.
Meanwhile, the SPF appears unsure of how to solve the problem.
“We recently called Lynyk to our office, and clearly told him he needed to come up with a good revitalization program for Rosava, one that will get the plant out of its current crisis,” Chechetov said. “I want to see his plan and when I do, then we will have to decide what step to take next.”
Chechetov also tried to downplay the fund’s position on Amtel.
“The main concern in decision making about the future of the plant is market share – the plant can’t afford to lose its markets,” Chechetov said. “We don’t want it to lose the Russian market.”
Dmytrenko said things just keep getting more and more complicated.
“The more this situation develops, we are faced with more questions and fewer answers,” Dmytrenko said.
Dmytrenko said problems at the plant can’t be solved by the SPF, shareholders and management, alone.
“The main goal should be to return the assets to the original Rosava company so that a transparent privatization tender can be held,” he said.
The Rosava joint venture accounts for 80 percent of all the tires made in Ukraine and exports about 65 percent of them, mostly to former Soviet countries including Russia.
