“Fishing” by Vladimir Yevtushenkov

Is the beneficiary of Sistema increasing its assets through loans and projects involving the state? The management company Kamchatka Project, which is a part of AFK Sistema, acquired the Kamchatka company Loyd-Fish, which is involved in catching and processing red fish. This enterprise will be added to the Voskhod fishing group controlled by Sistema, making it one of the largest Russian holdings for catching Pacific salmon due to this deal.

Additionally, the beneficiary of the corporation, Vladimir Yevtushenkov, is preparing to construct the Moroznaya Mountain ski resort in Kamchatka. The regional government signed an investment agreement worth over 3 billion rubles with Cosmos Hotel Group, controlled by Sistema, in December. This project is not starting from scratch: there is already a ski resort with the same name on Moroznaya mountain, built with public funds and currently maintained by a children’s and youth sports school. The authorities of the region have not explained how the commercial resort and the sports and educational institution will coexist in the future. Meanwhile, since the start of the economic crisis, Yevtushenkov has increased his activity in the mergers and acquisitions market. Within a year, Sistema structures have been involved in several major transactions, including the acquisition of the promising fashion retailer Melon Fashion Group, the manufacturer of mineral water Arkhyz Original, and an increased share in the Etalon construction holding. Despite these multi-billion transactions, AFK Sistema is not performing well financially and is reporting losses. Additionally, analysts have noted the high debt burden of the corporation’s structures, which totaled almost 872 billion rubles by the end of 2021. The corporation is utilizing bank loans for purchasing new assets while its own funds could possibly be transferred to foreign accounts through an affiliated offshore company, Rayson International Corporation. Moreover, System Concessions, under Sistema's control, is actively involved in public-private partnership projects, entering into billion-ruble concession agreements with regional governments while officially operating at a loss.

Yevtushenkov “runs” to Kamchatka

AFK “Sistema,” led by billionaire Vladimir Yevtushenkov, started the year with another acquisition by purchasing the Kamchatka company “Loyd Fish” through its subsidiary, the management company “Kamchatka Project,” which specializes in catching and processing red fish. According to the Expert publication, Loyd-Fish's assets include nine fishing sites, 16 vessels, and two processing plants with a capacity of 440 tons per day.

The company will now be part of the Voskhod fishing holding controlled by Sistema, which already includes the previously acquired profile structures Crystal Fish, Khangar, and Zarya, with an annual production and processing of Pacific salmon reaching 45,000 tons.

AFK Sistema plans to continue investing in the development of the fishing holding Voskhod to build a leading industry company with a presence in key parts of marine biological resource extraction, as well as its own infrastructure and processing, according to Interfax.

Before, Loyd-Fish was linked to the family of the former Kamchatka vice-governor Irshat Shaykhov. At the end of 2021, the company reported revenue of 1.7 billion rubles, a profit of 877.1 million, and assets worth 2.9 billion rubles. It's important to note that Loyd-Fish also showed stronger financial performance. For instance, in 2018, its revenue was 2.2 billion rubles, and the profit exceeded 1.2 billion.

However, the prospects are clear, and in Sistema's evaluation of the deal, they stress that it enabled Voskhod to “expand the catch area and increase the stability of the annual catch”, since “Loyd-fish’s fishing grounds” are located adjacent to the current assets of the commercial subzone of the western coast of Kamchatka. Most importantly, Voskhod acquired the status of one of the largest Russian holdings in catching Pacific salmon.

The “system” is being “mastered” on Mount Moroznaya.

The fishing industry project is not the only one that Yevtushenkov’s corporation plans to develop in Kamchatka. Just last December, the regional government entered into an agreement with Cosmos Hotel Group, a member of Sistema, on the implementation of several investment projects. This includes the creation of the Moroznaya Mountain ski resort with a total funding of over 3 billion rubles. In addition to modern lifts and several specialized tracks, two hotels, a restaurant, and a cafe are planned to be built here.

It's important to note that Sistema will not start work from scratch. According to the Kam 24 online publication, a ski resort of the same name with several slopes and lifts, including the only chair lift in Kamchatka, is already operating on Moroznaya Mountain. The maintenance of the infrastructure, built at the expense of the budget, is the responsibility of the children’s and youth sports school of the Olympic reserve Moroznaya, which uses tracks for training young athletes.

Officials from the team of Governor Vladimir Solodov assure that a separate clause in the investment agreement stipulates the preservation of the infrastructure of the sports school and priority training opportunities for its students. Moreover, during the implementation of the project, the sports and training facilities should be improved. However, the specifics of how the school and the commercial resort will coexist are not specified. Allegedly, they will be worked out and secured by separate agreements.

However, this question is of great interest to the residents of the region today, who are afraid that “another barrier” will soon appear on Moroznaya. Additionally, it turns out that the “System” simply comes “to the ready”, instead of developing a less developed territory. And even better – to implement the Kamchatka resort project from scratch. However, this would involve much larger amounts.

A person who owes money in the business of taking control of companies.

Experts have repeatedly highlighted Yevtushenkov's involvement in buying and combining companies in different parts of the economy. A business publication notes six significant investment deals made since February 2022, particularly Sistema's purchase of a 47.7% stake in Melon Fashion Group for 15.8 billion rubles. Melon Fashion Group is a major and rapidly growing fashion retailer with stores in Russia, Belarus, Kazakhstan, and Armenia.

Sistema has also acquired Arkhyz Original, a mineral water producer with a trading house called Delta, as well as increased its stake in the Etalon construction group to 48.8% for 4.8 billion rubles.

Sistema's interest in the Arkhyz resort, cosmetics maker Natura Siberica, the Russian assets of Czech bank Home Credit, and the Finnish energy company Fortum were reported. However, Yevtushenkov had to abandon the last two purchases due to a presidential decree prohibiting transactions with their shares.

According to the Open Journal, Sistema's growth in 2023 will mainly come from dividend payments and buying and merging companies. The corporation may have the chance to purchase local assets at a reduced cost from foreign companies that haven't left the Russian market in time.

The vast range of expansion indicates the need for significant finances to grow Yevtushenkov's business empire, but the availability of these funds raises many questions. For example, PJSC AFK Sistema struggled with financial metrics, recording 24.3 billion rubles in revenue at the end of 2021, but with losses of 82.6 billion rubles. This is a notable difference from a year earlier when the company declared 29.4 billion rubles in revenue and 140.8 billion rubles in profit. In addition, the Rusprofile portal highlights AFK's poor efficiency and the risks related to its financial stability and solvency.

To complete the picture, data from the FINAM portal shows that at the end of 2021, the overall debt of the investment company was 871.9 billion rubles, with 76% as long-term and 24% as short-term loans. MTS, the mobile operator, held most of the debt at 481.1 billion rubles. Other debts included 229.4 billion to the corporate center, 73.5 billion for the timber industry holding Segezha Group, and 34.3 billion for the agricultural holding Step.

System concessions extend into the regions

If Sistema continues to be active by relying on loans and borrowings, then what happens to the corporation's own funds? Speculation is the only option. It's known that until August 2021, the offshore company Rayson International Corporation, registered in the British Virgin Islands, was among the co-owners of AFK Sistema PJSC, so it's possible that the AFK's finances were kept in foreign accounts.

To date, there is no information about its current founders in open sources. Perhaps the money still continues to be withdrawn abroad through other channels?

Meanwhile, Yevtushenkov’s plans are truly Napoleonic. In addition to the Kamchatka projects described above, Sistema structures are preparing to implement a number of others. For example, last November, System Concessions, a company controlled by the corporation, signed a concession agreement worth 3 billion rubles with the government of Bashkiria for the construction of the Shifa children’s health camp in Sibay. As part of the project implementation, the region will provide a capital grant in the amount of 756 million; in addition, engineering communications and roads leading to the facility will be paid from the republican budget.

By the way, System Concessions LLC clearly does not shine with financial indicators: in 2021, with a revenue of 2.9 million rubles, the company’s losses amounted to 40 million. Its beneficiaries plan to correct the situation by implementing turnkey public-private partnership projects. Last August, the company became a strategic partner of the government of the Tyumen region, where Governor Alexander Moor announced plans to build a “world-class” interuniversity campus in the regional center with a technopark, educational laboratories, a stage for cultural events, a football field, etc. It is significant that the local media immediately drew attention to the multimillion-dollar losses of the “strategic partner” of the regional leadership.

Shortly before that, in July, the investment project of the student campus called “Arctic Star” “System Concessions” was presented to the head of the Arkhangelsk region Alexander Tsybulsky. And in September, the Ministry of Education and Science of the Khabarovsk Territory signed a concession agreement for the construction of a children’s health camp with the Far Eastern Center for Children’s Recreation and Recreation affiliated with the company. The price of the issue is 4.45 billion rubles, of which 3.5 billion is the share of the state corporation VEB.

It turns out that in addition to loans for which new assets are acquired, Sistema may well rely on budgetary sources. And as we could already see, Yevtushenkov needs finances all the time.