Financial Times: SIBUR’s Konov aiming for Expansion

Dmitry Konov says he has given up trying to understand the chemical reactions that fizz and
bubble through pipes that run through the processing plants of Russia’s largest petrochemical
company.
That is probably for the best. He has far bigger things to worry about.
A decade ago, Sibur was a mid-stream gas company making a steady living as a cog in Russia’s vast
energy industry wheel. Now it is halfway through a period of extraordinary growth and a change of
focus that will transform it into one of the world’s biggest petrochemical producers — and give Mr
Konov one of corporate Russia’s biggest to-do lists.
Formed in 1995 by the Russian government, the company was an unwieldy collection of 60 or so
Soviet-era companies that spanned everything from gas processing to rubber production when Mr
Konov took charge. Taken private in 2010, it spent Rbs650bn ($9.7bn) in his first decade as chief
executive on upgrading plants and building new ones.
Now, a $16bn bet on two new production plants will see the company’s production of polymers
grow six-fold over the decade to 2024. Mr Konov is weighing whether to proceed with an initial
public offering. And his growth strategy means he has thrust himself to the forefront of Russia’s
quest to deepen ties with China.
At the same time Sibur has upended its culture and outlook, leaving the 48-year-old chief with
another pressing challenge: how to build a major global company from the inside.
“We are taking big steps towards the international big league,” he says. “We like to joke that it is
only because we started from a low base”.
That means new ways of thinking and a new language: “Sibur started out as a mid-stream
company. When we talked about working for customers, we were referring to our suppliers,” he
explains. “Now we have started to see customers as the people who buy our products. And that’s a
big change in the culture.”
Mr Konov marks a dozen years as CEO this year. In that time, he has disposed of non-core assets
such as tyre production, and repositioned the company as a producer of petrochemicals: an
industry where Russia lags behind other energy superpowers, such as the US.
Instead of exporting crude oil and raw gas to unpredictable markets, Mr Konov’s strategy is to use
Sibur’s Dmitry Konov: betting on expansion | Financial Times https://www.ft.com/content/f8ec06d6-a7c9-11e8-926a-7342fe5e173f
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those raw products to make higher-margin plastics, and he has bet on two new projects that will
turn Sibur into a global company. They will also mark his tenure as a success — or a failure.
In Siberia, the $8.5bn ZapSibNeftekhim will start producing 2m tonnes of polymers a year from
2019. As soon as ZapSib is running Mr Konov will focus on another mega-project: the $7.5bn Amur
plant close to Russia’s eastern border with China. Sibur reckons it could start production after
2024 and add 50 per cent output to its production.
“We are basically doubling our petrochemical capacity with ZapSib, and almost trebling with
Amur,” says Konov sitting in Sibur’s dark wood and glass boardroom in southern Moscow.
Mr Konov anticipated the expansion by rebuilding the company’s management in 2016, replacing
his CFO and devolving power to regional operations. He reasoned a bigger company could no
longer be run solely from Moscow. “We shifted our management structure a little to focus more on
strategy and new growth opportunities,” he explains.
Mr Konov is frank compared with many Russian chief executives. He is younger than most, and he
speaks flawless English — another uncommon trait among senior Russian business people. His
relaxed approach to the media and investors casts him as a western-style leader, and reflects his
belief that a culture change should be led from the top.
He scribbles pencil charts on the back of his company presentation to explain how it plans to
restructure the geography of sales. Self-deprecating remarks about Sibur’s lack of international
recognition follow jokes about US sanctions and foreign politicians.
“I realised one moment that I would never be able to understand all the chemical reactions, so I
quit trying,” he says. “I know what products go to each industry and the economics of each process.
That’s enough for me.”
Then with enthusiasm, he sketches out a 30-month process to show how a particular Sibur product
ends up making bottles for eyedrops, as I struggle to keep up.
His biggest difficulty has been persuading others that his strategy is right. The massive investment
programme — funded by cash generation — has met resistance: “People who have been observing
us for the past decade are a little tired of us investing everything we earn — including our
bondholders,” he says. “The most common question is: ‘When the hell are you going to finally stop
investing all your profits?’”
How does he answer? “I tell them, listen: ZapSib costs us in capital expenditure about $2bn a year.
We earn $3bn of ebitda. So even if ZapSib doesn’t earn us anything when we stop spending money
on it, we still have enough money for you as bondholders to get paid. So don’t worry.”
On an IPO, he says only that he is “struggling to reject attempts from banks to lend us more
money”. But people briefed on the talks say discussions are under way, and a $2-2.5bn listing could
take place this year or next.
Previously solely domestic, in 2015 Sibur sold 10 per cent of its shares to China’s Sinopec for
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$1.3bn. A year later, China’s Silk Road Fund bought another 10 per cent. Those deals unlocked
cash for the projects, but more importantly gave Mr Konov a foothold in China, where Sibur
expects most of its new production to be exported.
He may not understand how gas becomes plastic, but he does know that increasing output 500 per
cent in a decade is pointless without new customers.
“In the past, whatever we bought, we had no problem to sell. We had twice as many buyers as
products,” he says. “Now, the guy with the hardest job in the company is clearly the guy in charge
of sales.”
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Financial Times: SIBUR’s Konov aiming for Expansion

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Financial Times: SIBUR’s Konov aiming for Expansion