Kusto Group has a history of raising fallen giants to their former glory. The Singapore-based company recently did this again, as it took over a Kazakh tannery.
Back in early July, Kusto Group managed to revitalise the seemingly hopeless integrated tannery works in the city of Semey (formerly Semipalatinsk).
“For years, this once-booming enterprise had been encumbered with bankruptcy litigations and now, finally, it has been resuscitated and has produced the first batch of 3,000 m² (32,000 sq. ft.) of wet blue, a semi-finished tannery product,” says Ruslan Bisenov, LLC Semey Tannery’s Executive Director.
Wet blue is used to produce blousons, heavy coats, leather belts, leather accessories as well as footwear and boasts; durability, reliability and affordability due to low prime cost. Kusto Group has leased the enterprise with an ultimate buyout option.
Kusto Group was the strategic investor
The factory was acquired in a nearly-dilapidated condition, so before the manufacturing process could be restarted, LLC Semey Tannery (a subsidiary of Kusto Group) was not only forced to conduct large-scale infrastructure rehabilitation works. They also had to invest in previously non-existent facilities to accommodate safety and improve the working conditions for the tannery employees, for instance, building walk-in shower units for the workers.
Due to the importance of the enterprise to the tannery industry of Kazakhstan, the Akimat Administration of the East Kazakhstan Region teamed up with the Ministry of Industry and Infrastructural Development of Kazakhstan and the Investment Fund of Kazakhstan JSC (to whom the right of ownership for the enterprise was transferred after it was declared bankrupt in July 2019) to attract a strategic investor who would be capable of relaunching the operation and thereby creating new jobs.
Thus, in May 2020, the IFC signed an agreement handing over the facilities to Kusto Group under lease terms with a possible buyout option – and in a mere two months, on July 27th, 2020, the tannery was up and running.
Today, the enterprise is comprised of three sections; two that produce sheepskin and fur and one sewing segment, with a complete manufacturing cycle.
Promoting the development of the ‘basic stuff economy,’ the factory not only supplies commercially saleable tannery and fur products, but also rawhide materials for other industries.
Kusto Group extends the lease
The management of Kusto Group’s subsidiary undertook a comprehensive audit revision of all of the technological equipment, repaired the crumbling roof, renovated and upgraded the sewage system and hired a security guard company to furnish the site with proper protection.
Kusto Group initially planned to lease the facility until the end of December, but given the circumstances, the company now plans to have the lease extended by at least a year, including an additional lease on water treating facilities (part of the factory’s tertiary wastewater treatment system).
Apart from the comprehensive overhaul of the factory, the company also had to hire additional personnel. Today, it employs 60 workers; some of them seasoned employees of the former enterprise; others recruited from the local slate factory. Additional hiring is in the pipeline, as the firm is soon expected to increase the workforce by up to 200 new jobs.
Tannery meets domestic demands and exports
The tannery can process up to 30 tonnes (1,500 hides) a day. Working at full capacity, Kusto Group’s tannery facilities will roll out a monthly commercial output of saleable products which will add up to more than 400 million Tenge (about $1 million).
This is truly impressive, particularly considering the fact that even after modernization in the early 2010s, the tannery failed to reach 20% of its output – largely due to the fact that hides of large bovine cattle had become scarce in Kazakhstan.
Improper upkeep, disproportionate utilization of manual labour, lack of properly equipped slaughterhouses and poor cattle breeding conditions failed to satisfy the demand for raw materials of a high enough quality.
The latter problem was partially resolved through the experience and resources of KazBeef, another subsidiary of Kusto Group, engaged in the production of marbled beef.
KazBeef slaughters up to 1,800 large bovine cattle heads annually, ensuring a stable supply of top-quality expendables, which the tannery uses to manufacture the semi-finished wet blue products used as raw materials to fabricate commercially saleable leather.
At its maximum capacity, the factory section producing finished leather can process up to 30% of wet blue. Semey Tannery is the only enterprise in Kazakhstan that can manufacture finished leather; yet, it has been all but idle for the past decade.
At full capacity, the output will not only satisfy the demand of half of all domestic enterprises but will also enable the tannery to export wet blue to Italy, China and India. Even at its initial run, Kusto Group’s tannery will be able to roll out at least 1.7 million m2 of wet blue materials a year.
Agricultural development among Kusto Group’s top priorities
There is, however, another obstacle falling outside the scope of entrepreneurship and management; Kazakhstan maintains state-mandated export tariffs applied to canned unfinished hides of large bovine cattle, thereby imposing a restriction upon export sale of rawhide in the markets of Ukraine, Turkey and other countries that have a demand for the raw material to produce gelatine and belcosine casing.
Participation in the development of Kazakhstan’s agriculture is among Kusto Group’s priority missions, as the international company is keen on creating a full-blown cutting-edge agricultural industry encompassing everything, from the selection of seeds and to the processing of finished animal husbandry products.
“This flagship batch of products is only a first step towards our strategy to create a competitive tannery industry in Kazakhstan, starting with our integrated works in Semey, but we are poised to proceed with our undertaking and ready to face any challenges,” says Kanat Kopbayev, member of the Governing Board of Kusto Group.
Kusto Group was founded by Yerkin Tatishev in 2002 and now operates in various areas including agriculture, oil and gas exploration, real estate development and construction materials.
The Investment Fund of Kazakhstan, an affiliate of the Baiterek Holding, is a state-operated institute for development and an entity overseeing the restructuring and management of assets in distress.