Kalashnikov Group to sell 49% stake to private investors for $77 million USD

The Russian state-owned defense giant Rostec is selling 49% of the new Kalashnikov Group to private investors for $77 million USD. At that price I think the Russian oligarchs who purchased the 49% stake got a very good deal.  I must admit I did not see this coming. The company has been state owned ever since the days of the Tsar.

The full Rostec press release is below …

Rostec has proposed selling a 49% stake in Kalashnikov Group to private investors. At the same time the state corporation will retain a controlling stake of 51% of shares. Andrei Bokarev, President and Co-owner of Transmashholding, and Aleksey Krivoruchko, CEO of Aeroexpress and a member of the Board of Directors of Transmashholding, have come forward as investors. The deal amounts to RUB 2.5 billion.

In accordance with the development strategy for the small arms sector lasting until 2020, which has been developed by Rostec together with the Ministry of Industry and Trade, Kalashnikov Group will be responsible for the full product lifecycle from design to disposal. It will also carry out research and development work to create advanced weapon systems. According to the strategy, revenue from the sale of small arms is anticipated to grow by four times to RUB 24 billion, the production of small arms is predicted to grow three times to 1.9 million units per year, and labor productivity is predicted to grow three times to RUB 2.5 million per person.

To implement Kalashnikov Group’s strategy, RUB 3.6 billion will be required, 2.5 billion of which will be raised from the private investors Andrei Bokarev, President and Co-owner of Transmashholding as well as Co-owner of Ural Mining and Metallurgical Company, and Aleksey Krivoruchko, member of the Board of Directors of Transmashholding.

“Public-private partnership is an effective model for reforming Russian industry, and it allows for implementing large-scale projects,” said Sergey Chemezov, CEO of Rostec. “In addition to investments, it is especially important to attract investors who have both market expertise along with a responsible attitude to the purchased assets. Since Kalashnikov Group is a strategic company, the main condition was that the deal needed to be absolutely transparent. The new strategy adopted by the corporation will place Kalashnikov on the path of sustainable development. At the same time the state, as represented by Rostec, will retain a controlling interest in the corporation, which is essential to maintaining a balance of commercial and public interest in the enterprise.”

The corporation plans to issue additional stock in order to complete the deal, so that investors’ funds can be invested directly into Kalashnikov’s authorized capital and contribute to the company’s development. In accordance with the terms of the deal, the investors will use their own funds and loans to buy 49% ownership of Kalashnikov Group for RUB 2.5 billion. To achieve this goal, the investors will create a joint venture in which investor ownership will be split 50/50. The amount of RUB 2.5 billion will be invested over the first two years, with RUB 1.3 billion to be invested in the authorized capital immediately. These funds will be used, among other things, to pay off debt as well as to pay the corporation’s loans. Rostec has invested RUB 1.2 billion in Kalashnikov Group over the last two years. An independent evaluation of Kalashnikov Group will be completed by the end of October.

“The Russian small arms industry has great potential, but in order to realize it we need significant resources and managerial competence,” noted co-investor Andrei Bokarev. “Our decision to invest in the Kalashnikov Group was primarily due to financial motivations. We already have experience in creating financially successful hi-tech machine-building companies, and we are ready to apply these competencies to the development of Kalashnikov Group.”

The deal to sell a 49% stake to private investors was approved by the Ministry of Industry and Trade, and it has also won the support of Vladimir Putin during his recent meeting with Sergey Chemezov at a presentation by Kalashnikov Group.

Andrei Bokarev and Aleksey Krivoruchko have extensive experience in the arms manufacturing industry. Transmashholding has fulfilled a number of contracts for the Ministry of Defense, including those for the production of “Shilka” self-propelled anti-aircraft weapon systems, tractors, as well as “Thor”, “Buk”, and “Tunguska” crawler chassis. The company also manufactures diesel engines for submarines, railway platforms for mobile missile systems and shipping containers for missiles.

In 2010, state-owned Rostec was actively engaged in resolving the problems of NPO Izhmash when the Russian small arms industry was in deep crisis. At that time enterprises faced severe financial difficulties and suffered due to a lack of modern technology. Izhmash had an opaque and cumbersome management system: it consisted of 32 legal entities, some of which were in offshore jurisdictions. It relied on illegal methods for withdrawing funds. The company was on the verge of bankruptcy.

The creation of the Kalashnikov Group was the systematic result of a financial crisis bailout program developed under the leadership of Sergey Chemezov.  In addition to Izhmash, the corporation includes Izhevsk Mechanical Plant, Vyatsko-Polyansky Engineering Plant Molot, Koshkin Automatic Lines Design Bureau and NITI Progress.

THE KALASHNIKOV GROUP is an association of the largest companies in the Russian small arms industry, which are subsidiaries of the Rostec State Corporation. The corporation was founded on the basis of Izhmash, Izhevsk Mechanical Plant, Vyatsko-Polyansky Engineering Plant Molot, Koshkin Automatic Lines Design Bureau (Klimovsk) and NITI Progress (Izhevsk). The corporation is the largest Russian manufacturer of military-grade automatic and sniper weapons as well as guided artillery shells. It also produces a wide range of civilian products, including hunting rifles, sporting rifles, machine tools and tools.

 Thanks to Jesse @ Predator Intelligence for the tip.





Steve Johnson

Founder and Dictator-In-Chief of TFB. A passionate gun owner, a shooting enthusiast and totally tacti-uncool. Favorite first date location: any gun range. Steve can be contacted here.


Advertisement

  • Vhyrus

    Not business savvy enough to understand the finer points of that blurb, but I am hoping that it means more (and newer, and cheaper) Russian rifles make it stateside for private purchase. Seems like a private sector owner would push for more US dollars.

  • Kalashnikov AK-101 as seen above.

  • Greensoup

    Sounds like they didn’t have the experience or the money to move to a modern manufacturing system so essential merged with another arms company that had the money and understood the technology better.

    • BigSal

      You have literally no idea what you are talking about. Izhmash underwent a series of modernization programs since the early 1990’s and produces a fine rifle. They have a mastery of modern technology. What they lack is a good marketing team.

    • Glassimamaya

      To my knowledge russia is sitting on quite a large stockpile of ak-74’s from the Cold War and their military budget is not as large ex. Look at the state of their navy. Kalashnikov is facing the same problem as other manufacturers in the u.s. When the army conducts tests for a new carbine. The product may be good but the marginal improvement over the standard rifle (ak-74 or m4) doesn’t justify a new arsenal

  • Glassimamaya

    It would be awesome if a u.s. Firm bought up that 49% to leverage them into coming stateside so we wouldn’t have deal with sporting laws or 922r

    • Cymond

      I don’t think ownership of a factory matters for 922r, only where the guns are made. As long as they are made in Russia, 922r will still apply.

      • Glassimamaya

        That’s why I said if a U.S. Group bought them they could bring them stateside

        • Cymond

          ooohhh … I thought “them” meant rifles, not the company.

  • Wayne Parker

    Wow! What a great article! I am looking for some assault firearms in Easton PA

    • Cymond

      SPAM ALERT!
      Look at this guy’s other comments. Every single one is irrelevant to the article, and includes a link to some kind of commercial website. As you probably know, the more places that point to a website, the higher it ranks in search results. This comment does nothing but increase the web visibility for Sarco.

  • MP

    Interesting to hear about the enormous amounts of money that multinationals require to continue to corner the market. Would be nice to hear more about some of the smaller, start-up companies that are using innovation instead of big dollars to break into the business, though.