Shares of paper and packaging group Mondi were on track for their best day in more than a decade on Friday afternoon, after it announced it had reached a €1.5bn (R25bn) deal to sell most of its assets in Russia.
Mondi’s paper business in Russia accounts for about a fifth of the group’s core profit, but it indicated in May it was looking to exit, amid an exodus of firms from the country due to the war in Ukraine.
By the close of trade on Friday, Mondi’s shares were up 10.33% to R335.96, putting them on track for their best day since March 2009, and valuing the company at R161.4bn on the JSE.
The sale covers Mondi’s most significant asset in Russia, an integrated pulp, packaging paper and uncoated fine paper mill located in the city of Syktyvkar, which is in the northeast of the European part of Russia and about 1,000km from Moscow.
The plant accounts for a portion of the region’s energy supply and is the primary source of heat and warm water for a district in Syktyvkar, while also providing other services such as wastewater treatment.
Moscow’s invasion of Ukraine has made doing business in the region complicated, causing many Western companies to suspend their Russian operations or leave the country.
The group also owns three converting plants in the country, primarily serving the Russian market, but this is not affiliated with Syktyvkar.
“An update will be provided on the divestment of these plants in due course,” the group said.
The sale of the assets to Augment Investments is still subject to approval from Russian regulators and Mondi shareholders, but is expected to be completed in the second half of 2022, the company said on Friday.
“However, the divestment process for these significant assets is operationally and structurally complex and is being undertaken in an evolving political and regulatory environment,” it said.
It will also exclude about a €225m cash pile, which will be distributed to Mondi as a dividend, but this also needs approval from authorities.
Augment is an investment vehicle majority owned by Russian billionaire Viktor Kharitonin, comprising assets in the pharmaceutical and other sectors across Russia, Europe and the UK.
The Syktyvkar business, which employs about 4,500 people, is a leading provider of uncoated fine paper and containerboard to the domestic Russian market, with a gross asset value of €1.59bn at end-June.
Mondi has recently expressed optimism about the health of its finances despite facing the loss of a profitable market.
Underlying core profit surged 65% to €1.17bn in its six months to end-June, with the firm saying it was successfully passing on surging costs, such as energy, to customers, as well as benefiting from its status as a vertically integrated producer.
With Michelle Gumede
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