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. Last Updated: 07/27/2016

St. Pete Shipbuilder Sold to Old Rival

MTThe sale of Baltiisky Zavod to OPK falls in line with government plans to push consolidation in the defense industry.
St. Petersburg industrial conglomerate IST Group said in a statement on Friday that it had sold its 88 percent stake in shipbuilder Baltiisky Zavod to United Industrial Corp., or OPK, which owns crosstown rival Severnaya Verf.

The deal ends years of often-fierce competition and gives OPK the opportunity to create a shipbuilding powerhouse. OPK is owned by Mezhprombank, which is controlled by Federation Council member Sergei Pugachyov.

"The deal was completed last Thursday, and the money has been transferred to our accounts," IST Group vice president Igor Tsyplakov said in a telephone interview.

Tsyplakov refused to reveal how much the deal was worth, but said it was "below $100 million."

"We made the decision to sell [Baltiisky] because the price was attractive," he said. "We have always said that these two plants have to be in the hands of one company, but we never said whose hands. This asset seems to be of more interest to OPK."

OPK board member Vladimir Zhelonkin declined to comment on Sunday.

"The two plants complement each other well; if they do it right, the new company can turn into a very attractive business with $500 million in annual sales," said Konstantin Makiyenko, deputy head of the Center for Analysis of Strategies and Technologies, a defense think tank. "This deal puts an end to three years of circus."

The rivalry between Baltiisky and Severnaya goes back to 2002, when the two shipyards entered a tug of war for a $1.4 billion contract to build two destroyers for China. The conflict eased only after OPK bought up Severnaya last year.

The standoff, which scratched Russia's reputation as a reliable arms exporter, was finally resolved in April when the companies agreed to join forces. Under the deal, Baltiisky Zavod, a maker of battleships for more than a century, agreed to pass over defense contracts to Severnaya and focus exclusively on building civilian vessels.

OPK is gaining a choice asset with its acquisition of Baltiisky. The company's order book through 2008 stands at more than $600 million, including icebreakers for Russia and cargo ships for Sweden, Tsyplakov said.

More importantly, the plant is now in the running to build three frigates for the Indian navy.

Last year, Baltiisky completed the delivery of three frigates to India under a 1997 contract for nearly $1 billion. Now, the Indians are interested in ordering three more, Tsyplakov said, indicating that the April agreement with Severnaya may be moot after the change in ownership.

"About a month ago, [arms export agency] Rosoboronexport received a draft contract for three more frigates in which Baltiisky Zavod is identified as the contractor," Tsyplakov said.

The Federal Industry Agency is now deciding which facility -- Baltiisky or Severnaya -- will get the more than $1 billion contract, he said.

The OPK deal falls in line with government plans to combine assets in the defense industry into holdings.

Boris Alyoshin, head of the Federal Industry Agency, said last week that the government was considering setting up two shipping holdings: one to unite submarine makers; the other, surface-ship manufacturers. At the time, Alyoshin said the surface-ship holding would be created on the basis of Severnaya and Baltiisky.

It was not clear on Sunday whether Oleg Shulyakovsky would keep his post as Baltiisky's general director, though Tsyplakov said "he will be useful to OPK, especially in view of the [upcoming] contract with India."