Oleg Popov: Our history is a story of an entrepreneur turned an investor

Oleg Popov: Our history is a story of an entrepreneur turned an investor

02.07.2021

In an interview to Ekonomichna Pravda, SCM CEO Oleg Popov spoke about business transparency, the new Ukrainian economy, integration into the world markets, plans for the next decade and myths spread about SCM. 

He says that for the next several years SCM will be focusing on the existing assets. 

Oleg Popov stated: "We will invest a lot in our Ukrainian businesses. We will expand the geography of our metals and mining as well as power generation businesses. We want to address our environmental problems. And even then we want to have a separate business that will focus on waste disposal. We want our employees to be happy. It is hard to motivate people if they work for the sake of salary only. We want our employees to be motivated. That's why we will develop educational projects and help develop the cities and towns where we are present. We always want to move ahead and be useful, both to ourselves and to the society."

He underlined that SCM is not responsible for operational management of its assets, but acts as an investor. Being a transparent business which has legally acquired its assets SCM wants to see sustainable development of Ukraine, consistency of the legal framework and investments in innovations.

For more about the main topics read the full version of the interview below. 

 

 

SCM turned 20 last year. The first question may seem odd, considering how long it's been, but it has not been answered yet, so 20 years later I want to ask you, how did you join SCM? Who invited you?

I was invited by Ihor Prasolov. I used to be working with him in Keramet Invest. He probably felt comfortable working with me, so he offered to continue our working relations.

How come that you replaced Prasolov as a head of SCM in 2006? Who made that decision?

It was decided by both Mr Prasolov and Mr Akhmetov who had hired him. Mr Prasolov majored in political economy, so he always felt more interested in public service rather than corporate management. Thus, he became a member of parliament. I was SCM's executive director at the time, so they offered me Prasolov's position. I accepted the offer, because business was and still is my passion. 

Where did the name SCM come from? 

I remember me and Prasolov walking in the park and thinking of a name for the company. Many companies back then had names that could be abbreviated to three letters, like ARS, IUD, etc. We also wanted something short but rather insightful. We knew that we were going to manage capital, so Capital Management stuck right away. Then we started thinking of another word to add, and chose "System". And so we got System Capital Management, and the Shareholder approved it. 

Is it correct to say that SCM's primary objective was business capitalisation?

Company's goals continuously change as its business evolves over time. At the very beginning we needed to bring the assets under one umbrella, audit them, look into finances and strategy, and only then shape a development strategy for those assets. 

We invited PricewaterhouseCoopers, who helped us tremendously at the start. How could we manage an asset without understanding it? It is wrong to just go by financial performance from the accounting books. We wanted to gain insight into both the management accounts and the statements based on the international reporting standards. Thus, we hired Price, and even found people there who were willing to join us. Maxim Timchenko (DTEK CEO - editor's note), Ihor Syry (used to head Metinvest, not with SCM anymore - editor's note), Andrii Gorokhov (CEO of UMG Investments - editor's note). All of them came to SCM from PricewaterhouseCoopers. 

When we sorted out the finances, we began to work out the strategy of SCM and its assets. To this end, we invited several consulting firms, with McKinsey being the main one. It helped us understand what we wanted and where we needed to go. 

The previous question was in the context of Ukrainian reality, when all the business groups, including SCM, had to do initial capital accumulation in a wild economy. Ukraine has not progressed too far since then, failing to become a fully civilised economy. The question is whether the history of the wild 90s is haunting the SCM Group now when it is seeking to remain civilised? 

Yes, the 90s certainly were different than 2000s and 2010s. Back then people made their first millions working as intermediaries, constantly buying and reselling something. Everybody was making money that way at the time. We and our Shareholder were not an exception. 

How did Rinat Akhmetov make his first million? 

I know for sure that he has been in trading business since 1991 or 1992. Together with partners he created a company called ARS and supplied material resources to the mines, took coal and made coke. The acquisition of Avdiivka Coke and Chemical Plant in the secondary market was a really good deal. And later they acquired Yenakiieve Steel Plant in the secondary market as well. I remember that Yenakiieve plant was sold by Kievan Rus, which had previously purchased a controlling stake in that plant for $700,000. But they paid much more when buying it from Kievan Rus. 

Does the history of creation of SCM Group cause any issues for the company today? 

Our history is simple and clear for everybody. In modern terms, it is a story of an entrepreneur turned investor. Some might speculate about the 90s, but I think it's wrong. 

Lots has been written about the times of initial capital accumulation of the Group. If we leave them alone and move straight to the times of Viktor Yanukovych's presidency, how would you describe them? After Yanukovych went to Russia many people said that his son's circle vigorously attacked the businesses, including those of their fellow Donbas people. Did you experience anything similar towards SCM or its businesses? 

There might have been such rumours, but we did not feel any pressure or anything you are talking about. Be it Yanukovych or Poroshenko, or any other president. 

Oleg Popov has not given any interviews for seven years since 2014 when the war broke out in Donbas. 

I do not count. 

You probably did have something to say. Why were you holding back?

We always have something to say. And we say it. Our managers from Metinvest, DTEK, and FUIB do speak out. I thought it was enough. As for my interviews, I am not a public persona in general. I don't like giving interviews, I don't enjoy it. 

Speaking of war times. When the situation in Donbas was just heating up, the Group's enterprises started to protest by sounding horns, which clearly was not enough to stop the armed rebels. Why didn't SCM take a more radical action? For example, a strike of workers who could have extinguished that simmering conflict? Did the Shareholder tell you not to look for trouble, stand back and take a neutral stance towards both conflicting parties?

What could we do as a business? Put unarmed people against gunmen? Start a strike? You know, there are lots of advice-givers. But I believe that we did a right thing in that situation, we could not risk the lives of our people, make them go unarmed under fire. We stand for peaceful conflict resolution, both in business and in domestic and international politics. 

We have the state and the government whose responsibility is to ensure this does not happen. They have the right to command an army. Business cannot take on this role of the state. Am I right? 

Businesses have a good self-preservation instinct, and when they feel threatened, they try to protect themselves. Perhaps, with consistent strikes at your enterprises you could have stopped them from replacing the state flags on the municipal buildings when they just began, thus protecting your business. Does the Group regret not being tougher in 2014? 

We did everything we could as a business. I don't know if the state did everything it could, I hope so. But there is no doubt that the events in Donbas are a tragedy for all of us. I lived in Donbas for 28 years, and it is a tremendous blow for me. 

Could you positively say that SCM Group's neutral stance at the time was not a reflection of Rinat Akhmetov's attempt to play both sides of the fence in order to influence the newly elected Poroshenko's office whom he did not have any contacts with back then? 

Do not demonise Rinat Akhmetov. Why would he want to play both sides of the fence? He has a solid footing as an investor, has a good business, good reputation. He has a track record of a man of his word. If he says something, he will do that. Everybody knows this. He is not a politician, never has and never will exploit people's weaknesses for his own gain. 
 
Was Rinat Akhmetov asked to become a governor of Donetsk Oblast in 2014 or 2015? 

I don't know. I heard someone talking about it (Kolomoysky, I think). I can only speak for what I've seen myself. I don't want to comment on any rumours. 

Most people didn't believe that Rinat Akhmetov was not in cahoots with the separatists and Putin until they took all the SCM's assets in the occupied territory of Donbas. Is it true that SCM drastically changed its management system after that, moving from a strictly vertical to a horizontal coordination? 

You are misunderstanding the way our Group operates. In fact, since the inception of the holdings our management system has remained unchanged. Take Metinvest, for example. It is controlled by the management, which is overseen by the supervisory board, which in turn reports to the meeting of shareholders. It is a fully western and very transparent corporate governance model. 

I'll rephrase. Does SCM act as a governing body in relation to its holdings, or as a structure responsible for attracting investments to the holdings? 

SCM is an investment company. We make an investment, hire a manager, set the goals and the rules, and then operate within this paradigm. We are not like IUD that managed all of its enterprises. We do not do operational management, we do not tell Metinvest or DTEK what to do. If we did, they would probably have gone broke already. (laughs)

What is the value of SCM assets right now? 

I think it's a rhetorical question. Only the market can provide a real valuation, when we go out to sell. 

Could you please give the amount of your overall loan portfolio across the Group?

Our loan portfolio, including public instruments (bonds) and bank loans, approximately amounts to $6.5 billion across the entire Group. 

What is your strategy moving forward? Will the Group reduce or increase this portfolio? 

This portfolio is quite big for us, the funding is not that cheap. Naturally, we want to reduce it, and we will. 

Could you name any parameters of the strategy, say, the portfolio will reduce that much in that many years? 

No, each holding has its own plans. Speaking of Metinvest, one of our key businesses, we want its debt to EBITDA ratio to be under 1.5, and 1 would be even better. 

What is the current ratio? 

It's important to understand the timeframe we are talking about. A proper time to determine it is end of year 2020. It was 2.5. 

It was previously stated that SCM's share in Ukraine's GDP was 7%. What is it now, based on 2020 performance? 

At some point, some estimated the SCM's share in Ukraine's GDP to be 20%. I know one thing, that in 2012 we hired Ernst&Young to study this issue. They looked at our Group and said that our contribution to Ukraine's GDP was 3.9%. It was before the war. In that same time our share in tax payments was around 5%, and even more in capital investments, as much as 10%, I think. 

What about now?

I think it is lower now, for obvious reasons. We have not done a new study. I like talking facts, when there is a study, a report, with figures to refer to. I don't want to speak hypothetically. 

A question about core activities of the Group. There used to be six of them: metals, power industry, finances, telecommunications, real estate, and media. Has this number changed in any direction? 

I spoke about these six areas a long time ago, when they were small. The lines of business change more in terms of quality. Take DTEK. It used to operate in thermal power generation and coal mining only, and now it is a different group. 

Back to your question, we have made another dedicated division – UMG Investments. This project evolved from our clay extraction assets with a help of a very active and efficient team, Andrii Gorokhov, Nadia Kaznacheieva. The team wanted to move forward, implement new investment projects and grow. A major and important issue for us as an investor is waste disposal at our industrial businesses. So we have chosen this direction as a new growth vector, as it benefits the environment, the economy, and has a huge potential. UMG operates in clay business as before, and UMG Investments finds investees and invests. UMG Investments currently works in multiple areas. Primarily, they consider all of our industrial assets and try to find more projects with high ROI, in particular the projects in waste disposal. For example, Ukrainian Mineral Fertilizers was built from the ground up, with over $11 million invested and around 100 jobs created. For many years, crystalline ammonium sulphate, which is a by-product of steel making, has been exported to Turkey, Bulgaria, or Serbia for treatment, and then re-exported back to Ukraine as fertilizers. We have established production in Kryvyi Rih to process the ammonium sulphate into a ready-to-use product. 

Does it mean that UMG is mainly focusing on Metinvest businesses that have endless waste? 

No, it's just one of the areas. The second vector is investing in projects unrelated to SCM. The key considerations here are the potential and innovation. For instance, production of protein feed additives for animals, cogeneration recovery of coalmine methane, a large-scale construction of grain terminal. They look as far and wide as they can. 

There is another distinction. Our Group has rarely joined any projects as a minority stakeholder. But UMG Investments is open to any partnerships, they are allowed to become a minority stakeholder and invest up to $10 million. 

Per year?

No, per deal. They are supposed to make two to three such deals a year. Naturally, we have certain ROI expectations. 

Coming back to the outlined six areas of SCM business, are there any that the Group considers less promising and intends to exit? 

Our Group is assessing the potential very carefully. Telecommunications used to be promising, they still are, but I am not sure whether these outlooks align with our appetite. So maybe telecommunications will be the first to go. However, no final decision has been made yet. 

The Group has recently sold Parallel fuel station chain, thus leaving one of its smaller sectors, oil product business. Please comment on why you have sold it and who is a new real owner. 

We have sold our entire fuel station business, because before the war Parallel operated 150 locations, with only 57 remaining at the time of sale. The rest were left in the occupied territory. We reviewed the outlooks of this business, tried to do something, increase its margin. It was low there, up to 10%, so we decided we don't need it in our portfolio. 

Some Oleksandr Dubinin claims to be a new owner of Parallel. It has been speculated that he is a figurehead owner. Could you name a real owner or refute that Dubinin is a figurehead? 

We have negotiated on the sale of Parallel for over three years. We had many prospective buyers and a regular market process. Market knows this well, by the way. In the end, we sold the business to people previously engaged in wholesale of oil products, if I'm not mistaken, so they were traders who wanted to buy fuel stations. We sold the entire business and exited it completely. As far as we know, the beneficiary of the company that purchased Parallel group is Oleksandr Dubinin (owner of Naftainvest 2000). 

A separate question about Brusnichka retail chain of SCM Group. Your quote from 2013: "You'd agree that people always buy groceries. If you pick the right format, provide a good service, and consumers feel satisfied with the quality, then your business will develop." 

How to look at this quote now that Brusnichka is basically done?

I think that our decision to close Brusnichka was affected by multiple factors. A bigger one is that the war broke out and many Brusnichka locations happened to be in that territory. The second reason for the exit was that we spread thin and got less involved with that business. It was the time when we decided to concentrate on the core businesses, to focus. 

In other words, the Group did not feel like building a supermarket chain from the ground up again? 

Let me put it another way. Over the 20 years of our journey we've realised one thing: it is very important to focus on the core points. Diversification is a fancy word. I remember that we made lots of purchases for fear of missing out. We spent a lot of money on those acquisitions, neglecting the existing assets. It was our mistake, we got misfocused. And now we've set focus on developing what we have and where our real expertise lies.

A few questions about the Group's relationships with Petro Poroshenko's office. When he became the President of Ukraine, Volodymyr Demchyshyn was appointed an energy minister and confronted DTEK about the coal production cost, which shaped the tariff for electricity obtained through thermal generation. Did the authorities use coal production cost as an element of pressure on the Group? 

On the developing markets, especially in post-Soviet countries, the government does not trust business, big or small. This distrust is inherent. There is a massive credibility gap, in Ukraine as well. And this distrust is very costly for all of us. Doesn't matter what president is in office. 

The new teams come to power and treat business as an enemy that hides something, underpays taxes, tries to snag something somewhere. Those myths stem from the USSR, in my opinion. While that is not true at all. So, the new teams arrive, who (a) try to figure out the matter, and (b) think that they are smarter that those doing that business. 

The situation with coal production cost was that young people filled the posts and dived into the matter. They claimed to be more knowledgeable about coal mining and thermal power generation than DTEK teams. Feelings were hurt on both sides, so this has grown into a conflict which the public sees the way you mentioned. 

So your answer is that the discussions about the coal production cost were not a part of systemic pressure on the Group.

I think they were not. 

Is it true that Petro Poroshenko demanded from Rinat Akhmetov some compensation for Naftogazvydobuvannya company? 

We bought Naftogazvydobuvannya from then current shareholders, Shufrych and Rudkovsky. If there were any internal conflicts before the purchase, it's not our problem and nothing may be claimed from us. 

Did Poroshenko's circle have any issues with SCM Group or DTEK regarding Naftogazvydobuvannya?

Everyone around the president wants to be useful to the president. Seeking to be useful, some just do their job properly, and some come up with pretences and manipulate them. That's all. People are different. 

So you think it was someone's attempt to curry favour with Poroshenko?

Maybe. I wasn't there, so I don't know what happened. 

Please comment on transition of relations between SCM Group and Poroshenko's office from negative to neutral upon approval of Rotterdam+ formula. 

Oh, neutral you say. Look, if there is any discussion of utility or electricity tariffs, someone always tries to politicise this matter. And I don't see any change in tone. 

What is Rotterdam+? In my opinion, it is a transparent formula that can be used to set coal prices. The same pricing principle was applied in gas sector. And now it serves as a price control tool on the oil product market. A formula based on import parity is not some kind of exception for coal, it is a general approach. I don't know whether the formula has been applied fully or not, but when it comes to coal pricing in the context of Rotterdam+, just look at the coal production cost at the state-owned mines. 

It is about 60% higher than at the private mines. 

More than that. And the state taxes you, us, subsidises the inefficient mines, and then says that it can buy state coal for any price. 

So here it seems to me that the people who have governed and continue to govern this industry have double standards. 

Rotterdam+ is not a factual evidence of conspiracy between authorities and big business? It is a civilised agreement?

Yes, at its core the formula is civilised. And to minimise such allegations and speculations we all need a highly civilised and transparent process for discussing major tax and tariff initiatives of the government. When a regulator imposes something, it does not do that in isolation. It agrees that with other agencies, discusses with the business. Another matter is how. If you look at foreign countries, they have discussion platforms. If Biden wants to raise the income tax from 21% to 28%, it is discussed between the government and the business. Ukraine definitely needs a public and professional platform as well, where business and authorities will discuss decisions before they are made. Without it, any decisions may seem or may be made look suspicious, or even corrupt. 

Mining, metals, and power continue to account for 90% of SCM's gross revenues. Doesn't the Group consider such a significant share to be a vulnerability, and doesn't it seek to diversify this risk?

When it comes to diversification, currently we can only diversify geographically. As you say, someone might influence the Group, right? Where might this happen? 

Where you have assets. 

Correct. So you look and choose a place to invest. Investment outside of Ukraine is an option, as it is a less turbulent environment. You can get cheaper loans, because risks are lower there. Ukraine offers higher ROI, but has higher risks. Due to higher risks, investors are looking for much higher return as a condition to invest, and this is Ukraine's problem. But we do and will invest, and we are not afraid that anyone will influence us, as you say. Because we understand one thing: we have been transparent for 20 years so far, without getting any preferences from the state, although we have always been labelled as privileged. 

We are constantly hearing accusations that we don't deserve. If you say that we are too big, then please launch privatisation. In a recent discussion of Ukrzaliznytsia rates Metinvest was accused of underpaying. Listen, guys, first of all that is not true. Secondly, why are you holding on to that company?

Sell Ukrzaliznytsia, make it private. In order to have competition and a proper market, as well as open up an investment flow. 

Let's talk about the civilised rules Ukraine wants to have. Is it actually civilised to impose different rates and charges per ton of cargo depending on its nature?

Tariffs depend on the cost of transportation of different goods. To give you more details, Metinvest has a station at Ingulets GOK in Krivyi Rih that connects to Azovstal Iron and Steel Works in Mariupol. The route is the following. At first grain farmers use dump trucks to bring grain to the warehouses, and each warehouse is supposed to be connected to a railway line. These are the so-called low density stations. They need to be maintained. This is Ukrzaliznytsia's job to develop the right tariffs and say: "Hey, guys, here are the tariffs. They are transparent." We support transparency. The situation we have now is clearly not the fault of Metinvest.

Does it mean that the Group will not oppose a possible administrative decision to raise the transportation cost of coal and steel, for example, to be as high as the cost of moving grain?

What do we want from Ukrzaliznytsia? We just really don't want to resist. We obey the rules and work within the legal framework, in every aspect. We want a civilised and transparent decision-making process, including on the tariff. We want to see a reasonable public dialogue and discussions. We want Ukrzaliznytsia to demonstrate transparency and efficiency. We want them to overcome corruption, calculate the cost of transportation and show everyone what tariff they want to set. They must provide the rationale and calculations. And businesses will provide their rationale and evidence.
By the way, it is more expensive to move steel than grain.

At the same time, transportation of iron ore is much less expensive than transportation of grain.

Iron ore is much cheaper and it is economically justified.

As Ukraine becomes more civilised, it will become a less risky country as well, which will reduce the profitability of doing business in Ukraine as a result. Can we say that with this process, SCM Group will refocus its portfolio of investments moving from the internal market to the external one? Are these processes going parallel?

If we have opportunities for investment outside of Ukraine, we will consider them. Yes, we are interested in making Ukraine attractive to investors. This is a key issue for the capitalisation of Ukrainian businesses, the volume and value of investments. And there is a lot to be done, and first of all we must eradicate corruption. So I know the government has got "Prozorro" system in place and it is really good that they've done it. It is necessary to reduce interaction between an official and a businessman and introduce a digital interface between them. So this is really big and hard work. I can tell you this. Even we have not completely eliminated corruption such as abuse and fraud inside the Group, but we are moving in the right direction. 

If you search on Google, you can easily find information stating that half of the Ministry of Transport staff receives a second salary from the SCM Group for working to its benefit. 

This is a lie. I will repeat once again. If you want to eradicate corruption you must minimise the impact of officials. If it is about a state-run company, make it a private enterprise. And you will not hear a word about this any more. Create a transparent dialogue to put all arguments on the table and make them visible. Anyone can throw all kinds of stuff at business nowadays and then watch it clean its name.

Will SCM Group participate in a privatisation auction if Ukrzaliznytsia is up for privatisation?

I don't think we will be interested in buying it. We have Lemtrans company and it is enough for us. However, if Ukrzaliznytsia is up for privatisation I will be really happy. Let foreign investors like EBRD and IFC come to the country and help it develop the infrastructure.

Is SCM participating in any projects that can be called start-ups?

Let me answer you like this. We have always participated in such projects. Even DCC communications provider was once a start-up. All our operating holdings have teams that are responsible for innovation, study the production process and try to understand how it can be improved using digital technologies or new solutions in operational management. This is about innovations. And some of these trailblazing solutions include start-ups. I have already told you about UMG Investments and about their mandate and projects.

As for start-ups, we established SCM Advisors (UK) Limited, which has been engaged in investment activity for 8 years already – we decided to try venture financing. It was Damir Akhmetov and his team who started this journey. They have already made about 50 investments.

Could you tell us more about this, please? What kind of company is this, how was it created, and is it correct to say that it is financed and coordinated by SCM? 

What is SCM Group? SCM is a major investor in various areas of economy. As I have already mentioned we decided to try venture financing following the initiative of Damir Akhmetov 8 years ago. Any idea that has the potential to become a business is initially a start-up that needs venture funding. 

Which areas does Damir Akhmetov's company invest in?

Different areas. Biotechnology, medicine, sports applications. They invest in many start-ups. 

Is it a separate business owned by Damir Akhmetov or is it a part of SCM Group?

It is still a part of SCM Group.

Does Damir Akhmetov run a separate business as well?

I know that Damir Akhmetov is engaged in investment activity and he earns good money. But I don't know the details.

Damir Akhmetov is a member of the supervisory boards of several key holdings of SCM Group. What is his role? Is he actually a full member making the decisions or is he still learning?

Of course, he is not learning, too much learning time! He is a smart guy with very good education and extensive experience gained during his work in the Group. He is a very meticulous person in a good sense of the word. He participates in all the key decisions of the Group.

Almir Akhmetov is not a member of any supervisory boards of the Group? Why?

He has not been drawn into the business yet.

Coming back to traditional areas of SCM Group's investments. In 2019, the agricultural holding of SCM Group HarvEast Holding added 29,000 hectares to its land bank through the purchase of Agroholding MC. Should it be taken as a sign that SCM Group will keep developing this business area?

The land bank of HarvEast is about 120,000 hectares , but it was not ideal in terms of its quality and risk exposure, because the weather conditions in Kyiv region are better than, for example, in Donbas, where we can lose crops faster. 

Thus, HarvEast is trying to form the right land bank to ensure sustainability of the company. The goal is to change the quality of the land bank rather than size.

The size is not of great importance for investors. It is important how much we can get from one hectare. That's why they invest in irrigation and seed raising.This helps increase the cost of one hectare.

Are there any assets in any area which SCM Group intends to acquire or is acquiring now?

As an investment company, we are not looking at anything for now. We primarily focus on the development of the existing assets.

Our operational holdings have got some hot acquisition targets. However, we carry out rigorous analysis on each investment opportunity. 

We have already mentioned that mining and metals account for the largest share of SCM Group's business. Why wouldn't you switch from selling raw materials to making and selling finished products? For example, autobody sheets?

Who needs autobody sheets in Ukraine?

Nobody in Ukraine, but our question is not restricted by geography. What prevents the Group from buying, wherever they want, a plant producing autobody sheets and stop being a seller of raw materials?

This is the goal of our strategy: stop selling raw materials and turn them into finished products. For example, HBI (hot briquetted iron).

Does it mean that the Group plans to acquire new steel plants?

No, it does not. To produce HBI we need to invest in Ukraine, in our mining and processing plants. For example, to produce galvanised coils we need to invest in steelmaking plants. For your information, this year Metinvest starts constructing a new cold rolling shop at Ilyich Iron and Steel Works, with investment in the first stage of construction exceeding $800 million. Metinvest has four rolling facilities in Europe: two in Italy, one in the United Kingdom and one in Bulgaria. Their total production output is about 2 million of plates and rolled sections per year. Right now Metinvest is finalising the strategy, including the part relating to its presence in the international market.

ISD Dunaferr in Hungary may be up for sale in the near future. There is information that SCM is ready to pay more than $200 million to buy the plant. Could you comment on this?

It's the first time I've heard about it. The Supervisory Board of Metinvest has not considered the matter. And I am a member of Metinvest Supervisory Board.

Is it an attractive acquisition target for SCM?

In fact, yes, it is. If it is put up for sale, we'll think about it. We will consider the price, the cycle (global steel price cycle at the time of sale - editor's note). It often happened that we bought assets at the peak of the cycle. Then it went down and we lost money. Right now it seems we are peaking.

So you will wait it out? 

We will see.

The next question is about global de-carbonisation trends. DTEK's decision to replace thermal power and coal generation demonstrates that this trend has reached SCM. What is the Group's strategy in the steel industry? Perhaps, you want to consider taking radical steps regarding Metinvest's mines in the USA operated by United Coal Company. For example, to sell them.

Not just yet. First of all, Metinvest's mines in the USA produce met coal for coke and chemical facilities. This is a part of the global steel industry, which is to become carbon-neutral by 2050. Until then, the products from Metinvest's mines in the USA will be still in demand and people will buy them.

'Not just yet" is a very important phrase.

Well, I can't tell you that we never sell anything. If we receive a good proposal at a good price we will sell the mines. UCC mines produce met coal for coking. With the existing steel making technologies we can't abandon the use of coking coal yet.

De-carbonisation is not a matter of fashion. This is essential to the survival of humanity. One more thing, when we bought one of our mines in the USA, it still produced 2.5 million tonnes of thermal coal. At first we sold it in the USA. With Obama in the White House, the USA started de-carbonising their energy sector and we had to stop mining thermal coal as there was no demand in the market.

Over 20 years of operations, SCM and its operating holdings have never violated their obligations to foreign creditors. Could you explain why the Group has still failed to become a kind of bridge between long cheap money of the Western world and the wild Ukrainian economy? 

We are always open to new partnership ideas. Many people, including foreign investors, wanted to create a partnership with us. However, for now we're making do with just loan facilities. And western money is not cheap. Today we are facing a paradoxical situation, when it is cheaper to raise dollars in Ukraine than from abroad. 

The thing is that there is time to earn your name and your reputation and there is time to dine out on it. Why wouldn't SCM use its name to secure consistent investment flow into Ukraine?

You are talking about the niche of UMG Investments. If some investor wants to begin a partnership with us and sees us as a local partner for a minority stake, we are always ready. 

Does it mean that SCM is ready to give up a certain stake in any business area of the Group to partners? 

We have always been ready for this.

Have you never had any good price proposals?

We have had different proposals from the point of quality of partners and price. However, to bring a partner into the Group we need to understand the rationale of this decision. You are wrong to think that a foreign partner will bring cheap money. Investors who want to invest, for example, in our business, understand the risks in Ukraine, and will immediately discount everything. 

This means that money from a foreign partner will cost you more than you if you raise a loan?

That's right.

Does SCM Group or its subsidiaries plan to do IPO?

Ever since the inception of SCM our objective has been to ensure that our businesses are ready to go for an IPO within six months or a year. Metinvest is the first company in the Group which is ready for an IPO. If we decide that IPO is good for us and that we want to sell a part of the company, this will be Metinvest.

It can be also a part of DTEK, in particular DTEK Renewables that focuses on green energy. 

I want to clear one point. It is one thing when a separate business is technically (in terms of bureaucratic procedures) ready for an IPO, and another thing when a business really needs it. Metinvest is the first in line because it is technically ready or because it needs it?

Almost all companies of the Group are technically ready for an IPO. Metinvest is ready in both ways, technically and whenever necessary. 

Do you know when Metinvest can be listed on the stock exchange, and what is the size of the shareholding we are talking about? 

It's too early to say.

Over 20 years of operations, SCM has had very few 'acquired' (not inherited) partners. Why? I remember only Vadym Novynskyi as a "voluntarily acquired" partner. 

We did not acquire him, it was a "win-win" deal. I don't think you know the full history of the Group. For instance, once we had Astelit company with Turkish partners. But then we withdrew from the company.

The question is that the Group is not ready to enter into a new partnership with any big Ukrainian business but for Novynskyi.

And which Ukrainian business is big for you?

For example, Kolomoysky.

As far as I know, Mr Kolomoysky is our partner at Krivoy Rog Iron Ore Plant.

This is the partner you are forced to co-exist with. It's not that you intended to create this business with him.

Yes, we did not. When you create something new the partners must share the same vision, values and understanding of how to develop this business. Otherwise it won't take off. It is important to have the chemistry between the partners. There are very few people like this. Not only in Ukraine but in the world. For this very reason we have very few partnerships from the ground up.

First Ukrainian International Bank (FUIB) is one of the few which survived the clean-up of the banking system under Valeria Gontareva's rule. If the Group has kept the bank it means it wants to develop it. Is there a possibility that you develop the bank by acquiring a part of Privatbank if it is put up for sale?

Privatbank is doing pretty well, at least now. However, there are other more successful banks. For example, Monobank, which is engaged in digitalisation and is doing really good job. But we are not considering any purchases now. FUIB's management will make the decision if they need expansion or not. If they say that it is important to expand business to become more sustainable, we well think about it.

SCM media assets are your business or tools of influence? Or maybe both?

They are business. Everything can be a tool of influence, even this interview we are having now. 

It's true that we invest a lot in our media business. We expected the TV advertising market in Ukraine to grow under the same laws as everywhere in the world and the market to generate about $500 million a year, but it stopped at $200 million. The profitability of this market is not as high as we would like it to be. Now the revenue model in this market is changing. We will continue to invest in media assets to see how new sources of income work and how new segments grow. For example, everything connected with TV digital platform is evolving rapidly. 

People are not fools. What do they watch? They watch the content they like. You can switch to another channel or turn off TV. I don't watch TV at all, for example. I don't have time. So, if it is about tools of influence, then how can you influence people if there are so many different media? If the right to know the truth is presented in Ukraine?

How is the commitment of the Group to be civilised and promote transparency aligned with the fact that the President of Ukraine and his inner circle are treated rather softly on Ukraina channel? Ukraina channel does not mind making series about the opponents of the Group, does it? The question is not about the moral side of the process, but rather about low efficiency. Don't you think that if, for example, you make series about some politician it means you help him capitalise? Don't you think it would be better to negate his role by ignoring him?

I am not a great specialist in TV business and I don't know in detail how the management team achieves ratings. The advertiser pays money depending on your ratings and the audience. If the management of the channel realises that these programmes, or as you say "these people or politicians", can help improve ratings, they invite them. 
I don't know a thing about their editorial policy. We do not interfere in their affairs.

Does SCM have the plans to expand its media business? 

If you mean TV then we have three main channels. Why would we need more? It's enough. We need to take care of these first. 

What will be SCM Group's position regarding the law on oligarchs which requires either to sell business or to sell the media assets? 

Let's wait until the law is passed. It is still to be discussed in the parliament. As a business, we expect the law to be in line with the Constitution of Ukraine and European practice and regulations. It also means respect for fundamental rights and freedoms. It means no discrimination against businesses or people through the art of political sloganeering. Our businesses work exclusively within the legal framework. We have created and purchased all our businesses, including media assets, legally. And we will continue to work within the legal framework.

What is the role of Rinat Akhmetov in the management of SCM Group?

I have already told you that Rinat Akhmetov is not just sitting on the yacht, smoking a cigar and getting dividends. He actively participates in the strategic decision-making processes. However, he is not engaged in the operational activity. Neither am I.

How frequently do you communicate with Rinat Akhmetov on average during one working month? Is it daily or weekly communication?

It depends. I can't say that we communicate on a regular basis. It's not that type of meeting that I need to take a folder and go to report to him. Of course, not.

Where does Rinat Akhmetov see SCM Group in 10 years? What kind of company will it be?

It's better to ask him about this. I think that the Group should first of all be sustainable and global. You've mentioned that two operational holdings account for 90% of the Group's revenue. We want to ensure that these holdings are sustainable. That's why we will remain focused and invest a lot in our Ukrainian businesses. We will expand the geography of our metals and mining as well as power generation businesses. We want to address our environmental problems. And even then we want to have a separate business that will focus on waste disposal. We want our employees to be happy. It is hard to motivate people if they work for the sake of salary only. We want our employees to be motivated. That's why we will develop educational projects and help develop the cities and towns where we are present. We always want to move ahead and be useful, both to ourselves and to the society.

Don't you think that behind-the-scenes relations between big businesses and the central authorities prevent the implementation of this strategy? I understand it is hard for you to answer for the Shareholder. Still, why do we hear about secret visits of Serhiy Shefir to Rinat Akhmetov? When will big business be ready for open relations with the authorities and stop hiding them? 

I believe that it is important to have a proper communication interface between business and the government, as it works in the world. I can assure you that business is not just ready but it does everything it can to ensure we have this communication interface. Why? Open relations are the main tool that can help eliminate corruption, which has become the biggest internal enemy of Ukraine. If we fail to overcome corruption our future is not good here. Including for legal businesses such as SCM.

When business is invited it always responds. At least we always respond. And the Shareholder. On 16 March 2020, the biggest businessmen of Ukraine were invited to the meeting with the President. It was the time when we needed to combine our efforts in a bid to fight Covid-19. Rinat Akhmetov came to the meeting as evidenced by official photos. He made a commitment to help four regions of Ukraine, which is a big responsibility and he still keeps to his promise. Overall, we have already allocated up to 450 million hryvnias to help fight against Covid-19, although our commitment was 300 million. I don't know if such meetings take place when we are not invited. I can tell you honestly that I do not keep tabs on Rinat Akhmetov and do not keep records of his meetings. I don't know who he meets or does not meet. I don't want to comment on rumours.

Doesn't it bother you as a manager of a big business that you can't see your Shareholder (like any other big businessperson) officially entering the Office of the President or visiting the President's home. These businesspeople always use tunnels or helicopters to get to a meeting.

I have already told you about the Shareholder. As for me, I have never used any tunnels. And I have never used a helicopter but for one time when I needed to be present at the opening ceremony of the wind farm in Botievo. 

Now the questions about Oleg Popov. There is an unwritten rule that if a person remains in the same position for more than 5 years he/she may become complacent. You have been on this position for 16 years. Why doesn't this rule apply to you?

Not all jobs are the same. It's not about your position, it's about what you do. I like helping people develop. Our Group believes that human assets are very important. If we don't have good people (not only in the management team, but also among middle managers and ordinary workers) we will not be able to win a competition. For this very reason, we pay great attention to this matter. For example, we are going to start the construction of the Technical University in Mariupol. I am also engaged in this project. It's not that I just sit in the office reading analytical reports and making some decisions.

Why has Oleg Popov's hair turned so grey over the last 7 years?

I don't know. Well, I understand that this job can be really stressful. But I am stress-resistant. I think that everyone's hair eventually turns grey with age.

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