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Some US FDI – Odessa

March 2, 2015

Having not written about anything local for a while, it is perhaps time to write about something positive occurring for Ukraine, and in particular Odessa.

For those who are not acquainted with Odessa, it is home to three large ports.  Odessa, Yushni and Ilyichevsk.

Ilyichevsk is approximately 50 square kilometers of port-side and container terminal with its own rail spur and good road links (as have the other two).  The port itself is a State asset, whilst the container terminal is not – albeit there is an obvious symbiotic relationship of mutual necessity.

Indeed in 2005 Ilyichevsk Container Terminal, then owned entirely by Andriy Pavliutin, and the State owned seaport entered into a joint venture to increase the size of, and upgrade the port side and container terminal, with German forwarding company SSR Deutschland subsequently buying 25% of Ilyichevsk Container Terminal between then and now.  The total expansion and upgrade costs thus far are approximately $56 million to date – and there is much room for further expansion, throughput, and efficiency to be sure.

In January 2015, a court decision to nullify the joint venture between the State owned Ilyichevsk Port and the Ilyichevsk Container Terminal was taken over apparent violation of the Laws of Ukraine on seaports.  That decision is currently being appealed.

How is this positive?  A profitable going concern, and major employer in Ilyichevsk going through legal wrangles?

A few days ago, the US private equity firm Siguler Guff & Company, which manages $10 billion in assets, sealed a deal to buy a 50% share in Ilyichevsk Container Terminal.  The ownership now being 50% Siguler Guff & Company, 25% SSR Deutschland, and 25% still owned by Andriy Pavliutin.

“Siguler Guff & Company consider their interest in the terminal rather promising. Ukraine’s economy will recover. There has been a significant political reboot and important reforms are being implemented. Rich in resources and boasting highly educated population of over 45 million, Ukraine presents new opportunities for the investment firm.

The implementation of the Association Agreement between Ukraine and the EU will inevitably increase Ukraine’s involvement in the world trade. Illichivsk terminal, as one of the market leaders, will grow with the country’s economic recovery. Siguler Guff & Company believes that its decision to come to Ukraine will send a positive signal to the global investment community and contribute to the growth of foreign capital in Ukraine.”

Clearly, Siguler Guff & Company are taking a long term view – as anybody purchasing 50% of a major container terminal in Odessa would be – war with Russia or not.  With a corporate philosophy that states “Siguler Guff strives to provide its clients a diversified global private equity platform that captures outsized returns by investing in and targeting areas of market inefficiency and capital starvation” – Ukraine, it has to be said, is currently a natural magnet for them, and others like them.

We will see who follows their lead, and when – if anybody.  Nevertheless some good FDI news for Odessa and Ukraine.

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