with Vyacheslav Tropillo, General Director, Kuznetsky Most
Would you start with a brief outline regarding your positioning within the leasing market for the oil and gas industry, and of some of the major partnerships you have created over the years?
Vyacheslav Tropillo (VT):
Kuznetsky Most existed on the market for almost five years and within this time period the company was able to firmly position itself on the Russian market. The company works closely with its partners who are the leading construction pipeline companies such as KrasnodarGazStroi, VolgoGaz, LenGazSpetsStroi, Neftegazkomplektmontazh, which are also members of the Stroygazmontazh group. Additionally Kuznetsky Most works with such companies as Zakneftegazstroy-Prometey, DSMU-Gazstroy and others. The company is well represented in oilfield services and geological exploration industries. Its partners in this area among others include Geotec, Siberian Service Company (former part of Yukos), BVT and a number of other service-providers that work with Gazprom, Lukoil, Rosneft and Novatek.
In general it can be said that Kuznetsky Most established partnerships with a very wide range of companies in the oil and gas industry. It should be noted that these enterprises appreciate working with Kuznetsky Most and continue to sign more and more contracts with the company. As a result the company has its operations in many Russian regions where development of oilfields and pipeline construction takes place.
With regards to Kuznetsky Most’s position on the leasing market, it needs to be noted that the company is not a bank, which provides leasing services, but a fully independent enterprise. It means that Kuznetsky Most does not suffer from the same limitations that banks do, and as a result the company has one of the lowest cost resources in the country. Investors perceive Kuznetsky Most as an organisation, which always fulfils its obligations despite all of the external factors, and this, of course, is a valuable quality of Kuznetsky Most.
It should also be noted that since Kuznetsky Most’s activities are extremely concentrated; the company is able to adopt its decisions quickly and efficiently. Being a well-known company among suppliers allows Kuznetsky Most to sign agreements without delays and deliver all of the required equipment on time, without letting its clients down.
Another aspect distinguishing Kuznetsky Most on the market is its belief in the importance of building strong friendships with clients on the decision-making level. Relationships can be developed with general directors, financial directors or commercial directors. Knowing these people personally means that neither side is likely to let the other one down. At the same time, Kuznetsky Most has strong principles and stays away from any dubious or even illegal activities. The company’s business approach allows it to operate at low margins and thus win tenders.
What proportion of your business is accounted for by oil and gas related operations?
VT: Kuznetsky Most’s strategic priority is focused on the oil and gas industry, which constitutes a major part of the company’s portfolio. Additionally, Kuznetsky Most is present on equipment leasing markets in aviation, nutrition and energy sectors as well as supplying a full spectrum of special hi-tech technology. Today the agro-industrial sector is developing rapidly, which is certainly an attractive direction for Kuznetsky Most.
In accordance with a federal program for provisions approved by the president of Russia, a lot of attention will be paid to agricultural production, modernization and replacement of animal and fowl farms. Kuznetsky Most will have a service portfolio that would meet the needs resulting from this economic situation. Therefore Kuznetsky Most is diversifying its operations and retains a broad portfolio of operations in diverse areas.
Regarding oil and gas, Kuznetsky Most has exclusive long-term agreements with Chinese and American producers of oilfield service equipment such as Stewart & Stevenson, Caterpillar, Barbco and other companies that can provide technology for pipeline construction, oilfield services and so on. Kuznetsky Most also has other contracts with German, French, Austrian, Japanese and Korean producers.
Although the history of the company’s existence is still relatively short, would you be able to take us through one of the more significant tenders won by Kuznetsky Most since its inception?
If we are to talk about tenders, one of the company’s recent large contracts was LenGazSpetsstroi for 400 million rubbles and before that there was an agreement signed with NefteGazKomplektMontazh, a deal worth 455 million rubbles.
Tenders serves as an information source for its participants. In reality each time when Kuznetsky Most participates in a tender, it gains experience and learns something new about these tenders and the project’s conditions. Even if Kuznetsky Most does not win a tender, the company goes to its bank partners in order to discuss what changes could be made, in terms of the parameters and stakes in order to ensure that the next time the tender will be won. Engaging in tenders therefore helps the company assess the requirements and needs of its customers.
No tender is won easily. Kuznetsky Most knows all the other suppliers and the range of their operations. For example, it is a fact that not all suppliers obtain the required equipment immediately after an agreement has been signed. Unlike other companies, Kuznetsky Most immediately starts purchasing and delivering the required equipment. The speed and pace of Kuznetsky Most’s operations constitutes a great advantage for the company. Kuznetsky Most has a very-well established communication system between its internal departments, which allows its employees to notify one another of any urgent news, which helps the company to sign contracts.
The financial situation in Europe of course cannot be ignored. How are Europe’s continuing financial woes going to affect the leasing business?
ВТ: Kuznetsky Most just started its operations during the crisis of 2007 and it seriously started developing only in 2008. It was a very difficult environment for business development. However, the ability of the company to survive and prosper depends on the decisions adopted by its management.
R. Zemikisa: At the time of the financial crisis we recalled a story from the movie Forrest Gump when his shrimping boat, not fearing the storm, was the only one to return to port the next morning, and his team caught huge hauls. The important thing was not to stand still, waiting for the storm to pass, but take decisive actions, required at that time. The key thing is that Kuznetsky Most has outlived the companies that froze their operations, while having big loans and as a result became victims of payment failures. Kuznetsky Most was also fortunate in the fact that its business operation model was based on friendships and not solely work with little-known customers. Strong partnerships ensured the receipt of payments by Kuznetsky Most during the crisis. It is not as likely to be let down by a customer when the company has a well-established relationship with the enterprise. It is also necessary to note that by saving these business relations, Kuznetsky Most was able to not have to diminish in size and retained a great potential for growth in the post-crisis period.
Expansion in the Asian market significantly helped the company in creating a more secure portfolio as well as providing Kuznetsky Most with new opportunities in difficult financial times that might be ahead.
Banks’ lending policies towards businesses have become much more conservative. What challenges does this present?
VT: Since Kuznetsky Most works mostly with large enterprises, conservative lending policy should not have such a great impact on its business. The fact that banks increasingly pay attention to leasing undoubtedly increases the pressure on small enterprises. However, Kuznetsky Most does not work in this market segment.
Currently the company is looking for foreign partners in order to work together on the financial market. Of particular interest to Kuznetsky Most are such large corporations as Goldman Sachs, JP Morgan, Morgan Stanley and other investors.
As for the customers, they would try to diversify their financing sources in order not to depend on a single source. They would try reducing the extent of their risk exposure, which suggests that the companies use the same tactics as Kuznetsky Most. It is important not to put all one’s eggs in the same basket, but to use all possible means and creditors for one’s financial aims. Therefore, Kuznetsky Most often acts as a lender for those companies. Additionally, it needs to be kept in mind that the leasing mechanism provides the customers with tax benefits and for that reason alone is much in demand.
Are there any issues with companies not understanding the financial tools that you offer?
VT: It should be reiterated that Kuznetsky Most works only with large businesses. This means that there are no companies among Kuznetsky Most’s partners that do not have a clear understanding of how the leasing mechanism works. We work with a wide range of customers some of them are the inheritors of their family businesses. Therefore, many representatives of the younger generation that assumed control of the business know the mechanism inside out. Unfortunately the older generation of those who created these businesses is leaving, but their sons, who are approximately the same age as Kuznetsky Most’s general directors are taking over. For that reason we are able to understand each other well and it is relatively easy to develop our relations. We meet in an informal setting and sometimes play golf. It should be highlighted that golf-club is a very pleasant and appropriate place to discuss financial matters since bankers prefer relaxed environments.
Our practice shows that Kuznetsky Most is not an exception to the unspoken rule, which states that 75% of major deals are concluded on the golf course.
Additionally, it can be noted that the new generation of top managers has MBA degrees, which is also the case for Kuznetsky Most. This allows the company to easily find a common language with its customers and makes communication much easier.
You have spoken of your intention to open an office in Hong Kong and of your search for western partners to add to your existing relationships with the likes of Caterpillar. Where will the company’s expansion plans take it over the next five years?
Recently Kuznetsky Most opened a company HKM HOLDING limited in Hong-Kong. We agreed to develop a joint insurance program r our international supplies with Jardine Lloyd Thompson, which is part of Jardines corporation, one of the largest trade companies in Asia.
Kuznetsky Most intends to continue diversifying its spectrum of financial business interests, aiming to secure itself against a number of risks to which it exposes itself by participating in the fast growing economic sectors.
Additionally, in a somewhat different sphere, Kuznetsky Most has a project for the archaeological excavation of the original Kuznetsky Most. There is a street in Moscow named Kuznetsky Most. Underneath that street there is an old bridge. It is one of the oldest bridges in Moscow and in Russia, located only 40 cm below the surface, close to TSUM and 5 minute walk away from our office. Our company aims to make this bridge a place for holding public events and holidays, expecting it to be awarded a status of UNESCO world heritage site.
As a company we think that the business must be socially responsible and must take part in different projects, aimed to preserve and increase the country’s cultural heritage. One of these projects is our sponsor support of the artistic association “Most”, whose works decorate our office and our business.
Do you have a final message for the readership of Oil and Gas Financial Journal?
VT: The slogan on the company’s website states, give us a call and let us get to know one another. In addition to the friendly relationships the company has with its clients, there are ambitious plans related to Kuznetsky Most’s growth and expansion on the international market. We believe that our reputation will help us in the implementation of our plans.