First Investment Case

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07/12/2019

First Investment Case

In 2007, Zamwell made its first investment into salmon and crab fishing companies in the Russian Far East and North. The former recovered from a debt crisis with the support of Zamwell, the latter grew into a major Russian king crab fishing enterprise in partnership with Zamwell team.

Background 

Over the past three decades, Russian fishing industry as well we the country's national economy went through ups and downs. In the 1990s, fish catch volumes almost halved  (from 8-9 million tons in 1991 to 4 million tons in 2001). In 2000, the Russian government adopted a regulation on the quotas on allowed fishing of aquatic biological resources, which was unwelcomed by major fishing companies. 

Four years later, the Barents Sea was opened for fishing Kamchatka crab.

Endemic to the northern Pacific Ocean, the Kamchatka crab or king crab was introduced to the Barents Sea by Soviet scientists in the 1960s.  A decade and a half later, the first adult crab was caught in Varangerfjord. By the early 90s, the crab got acclimated, its number grew steadily. In 1994, an experimental crab catching started in the Barents Sea. Ten years later, the number of king crab in the sea peaked, and the industrial crab catching began.

In 2005, a large Sakhalin company Tunaycha decided to start crab fishing and acquired first 40% and then 20% of the crab fishing quota for the Barents Sea.

Tunaycha

Sakhalin entrepreneurs founded the company in the early 1990s. In 1995, it began to cooperate with American partners that provided it with modern equipment in exchange for a part of revenues. For several years the company's profit gradually increased allowing Tunaycha to expand, get loans and purchase crab fishing boats. After acquiring Arktikservis and North Sea Alliance companies, Tunaycha owned 60% of the king crab fishing rights in the Barents Sea. However, the company did not succeed in getting the expected profit and paying off the debts.

By mid-2007, Tunaycha could no longer service its debts and found itself on the verge of bankruptcy. Right before all the company's shares were supposed to be transferred to one of the lenders, Zamwell founder was invited to join the project for investing and crisis management.

Over a short time, Zamwell

  • identified the causes of the company's hardship; 
  • developed an effective crisis management plan that Tunaycha used to improve business processes and cut costs;
  • assisted in debt restructuring. Negotiated the debt with the country's largest bank and made it aware of the importance of the Sakhalin company for the national fishing industry;
  • contributed to salary debt repayment. 

In 2009, Zamwell exited the project and focused on the development a Murmansk company Arktikservis that used to be a part of Tunaycha.

Arktikservis

Before Zamwell joined the project, the company had not have an effective export structure:almost entire crab catch was sold to the American creditor that loaned the Murmansk company funds for the fleet purchase and fishing. This sales system resulted in a serious debt when Arktikservis failed to comply with the catch volume plan and provide enough product to the lender. 

In partnership with Zamwell Arktikservis managed to

-  improve its debt repayment process and credit history

Zamwell negotiated the debt with the creditor (Pacific Seafood) and convinced the US company that bankrupting Arktikservis and arresting its product would harm the entire Russian fishing industry anf would not benefit the creditor. Zamwell agreed with Pacific Seafood a clear and achievable debt repayment plan. Having fully complied with it, Arktikservis returned the trust of its American partner.

- achieve better financing terms

In late 2009 - early 2010 Zamwell and Vneshtorgbank (VTB) held successful talks on Arktikservis debt restructuring.

- repair the crab fishing fleet

By the time Zamwell joined the project, a dozen crab fishing boats of Arktikservis had already been in a poor condition. Zamwell invested several million dollars into the fleet repair and organized their regular maintenance. The investors also contributed to the introduction of a bio-resource protection system. It allowed to release female and little crabs back into the sea without threatening their lives. 

- repay the salary debt, install a performance driven culture through a system of bonuses and reduce staff turnover rates through salary increase. 

- start selling crab in Russia and improve the export structure of Arktikservis

The distribution system Arktikservis had inherited from the previous owner did not deliver the expected profit since most crab catch was sold to the creditor at below-market price.

Having repaid the debt of Arktikservis, Zamwell started selling crab at market price and attracted new buyers, including European, American and Japanese companies. Owing to the new distribution system the Barents delicacy was not only marketed to big foreign companies but became more available to Russian buyers.

By the end of the project, Zamwell paid off all Arktikservis' debts and built the relations of trust between all the project stakeholders. 4 years after the start of the project, Zamwell was approached by a strategic investor with an offer to purchase Arktikservis. The deal was closed in October 2011.

Last year Arktikservis was rated one of Russia’s 50 fastest-growing companies.  

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