Updated April 2, 2008

   SIBUR Holding profit growth has slowed down in 2007. According to the company International Financial Reporting Standards (IFRS) the profit totaled just 4,2%. The maximum growth falls to the non-core segments, such as production of tyres and mineral fertilizers, which SIBUR plans to sell.

   SIBUR has published the reporting by IFRS according to 2007 results. The net income of the holding went 4,2% up, up to RUR 22,6 billion as compared to 2006, and the profit went 17% up, up to RUR 142,7 billion. Previous year the growth of SIBUR financial indices was more impressive. The holding net income grew almost twice then at the profit increase at only 14,4%. SIBUR vice-president for finances Alexey Filippovsky explains the income drop by outstripping growth of expenditures.

   SIBUR Holding JSC is the largest Russian petrochemicals company, amalgamating 34 enterprises. The company is engaged in the production of organic synthesis products, polymers, rubbers, car tyres and mineral fertilizers. Gazprombank controls 70% of SIBUR stocks, Gazfond controls 25%, and 5% is reserved by the company within the framework of the option program realization for the management.

   The petrochemicals continue to bring SIBUR the maximum profit, as this segment occupies 73% in the structure of the company profit. However, according to Mr. Filippovsky, the biggest growth has demonstrated the non-core segments, such as tyres and mineral fertilizers, which SIBUR plans to withdraw. EBITDA ratio of the tyre segment grew six times, and business of the mineral fertilizers output – three times. If the net income of the petrochemical segment demonstrated only 8% growth, so the net income of the tyre segment – 186% growth, and "other" segments (fertilizers, plastics, chemical fiber) – 39% growth.

   "These are the good types of business, and the matter of their sale is the matter of price and new owner, who can develop them successfully", says Alexey Filippovsky. Finam Investment Company analyst Mikhail Frolov considers the correct step to select the non-core activities, in spite of the fact they demonstrate the biggest growth. "The segments of tyres and fertilizers can work more efficient as separate structures due to the independent management", the analyst explains.

   Meantime, SIBUR debt load has considerably increased. So, the size of the short-term borrowings grew 15 times, up to RUR 10,5 billion, and the long-term (more than five years) – more than 40 times, up to RUR 2,4 billion. However, Alexey Filippovsky asserts that the debt level of the holding is lower, than the analogical western companies have. "The total debt level to EBITDA is 0,6, while other petrochemical companies have 1-2", the top-manager explains. According to him, "the financial stability of the company is high", and its "debt portfolio will grow in the nearest future". Thus, the SIBUR plans about IPO conducting in 2008 are open to question. According to Mr. Filippovsky, "it is inadvisable to place stocks at the external markets, while the company can attract money at the market of debt capital".

   Renaissance Capital analyst Marina Alekseenkova agrees that it is "not quite logical" to conduct IPO at the stage of SIBUR intensive growth. According to her opinion, the holding will cost more in a year or two, when it starts at least some of the announced projects. At the end of February the SIBUR directors’ board has already approved the private placement of the ruble bonds at RUR 120 billion, though the investment program of the holding for the current year totals around RUR 40 billion. Alexey Filippovsky says that the opportunity to attract these funds depends on how actively the holding will buy the new assets. In particular, last week SIBUR president Dmitry Konov said that the holding intended to enter the book value of OJSC Kazanorgsintez by the year-end. Juriy Volov from Bank of Moscow supposes that SIBUR would buy assets in non-core directions to increase their cost before the sale.