Royal Dutch Shell Plc .com: Rosneft pushes on towards London

Terry Macalister
Tuesday June 27, 2006
The Guardian

Russian group insists there is plenty of interest in its controversial listing

Rosneft swept aside mounting concerns about its controversial float on the London stock market yesterday and unveiled a premium price for its share sale, which would value Russia’s state-owned oil group at up to $80bn (£44bn).

A 500-page outline prospectus from Rosneft admitted that potential investors faced at least four serious cases of litigation and arbitration as well as political risks from policy shifts or other “instability” in Russia.

Rosneft gave a commitment to place its equity at between $5.85 and $7.85 per share, giving it a total value of between $60bn and $80bn, more than the country’s biggest oil group, Lukoil.

The high valuation put on the shares appears to stem from significant interest from Asian investors, reportedly Chinese banks and Indian oil companies, such as Oil and Natural Gas Corporation (ONGC).

“Entering the marketing phase of the IPO, we sense a great interest in our company from potential investors and have already received bids for a significant part of the shares placed, including from several big, strategic market participants,” said Sergei Bogdanchikov, chief executive of Rosneft.

“We look forward to meeting with investors over the coming weeks and in the future becoming one of the world’s largest traded energy companies.”

The top end of the valuation would give Rosneft a big premium to the price currently attributed to Russia’s number one oil group, Lukoil. Between 13% and 19% of the Rosneft stock is to be sold off and ONGC confirmed last night it was keen to buy, but no final decision had been taken.

The deal has been divided into two with an offering of old shares in Rosneft’s parent company, Rosneftegaz, and a second part offering 400m new shares in global depository receipts.

Rosneft outlined cases against it in London and Moscow courts of arbitration, another legal challenge in the US district court of Columbia, plus a fourth in an international court in Russia.

The company added: “It is possible that the global offering will lead to additional claims, including claims that could disrupt or delay the settlement of the global offering.”

Rosneft acquired 70% of its producing assets when it was allowed to buy, in unusual circumstances and for a knock-down price, the Yuganskneftegaz company that was owned by rival Yukos.

The controversial nature of Russia’s biggest privatisation continued yesterday when advisers to Rosneft admitted that only leading institutional investors were to receive the launch document and said it was not being published on its website. But details of the prospectus emerged later in Moscow after the company gave a presentation to kickstart a marketing drive that is expected to see shares formally priced on July 13 and trading six days later.

The government of Vladimir Putin had already indicated it wanted to raise up to $8.5bn, which would more than cover the $7.5bn loan the state took out to take a controlling stake in gas monopoly, Gazprom.

There have already been attempts to halt the initial public offering (IPO) by Yukos, which has called on the Financial Services Authority to intervene, alleging it involves the sale of stolen assets.

“The shareholding in YNG [Yuganskneftegaz] was acquired … at a very substantial undervalue in a transaction which was a fraud on the shareholders and creditors of Yukos,” it said in a 33 page submission to the FSA.

The British financial regulator declined to comment on the progress of any investigation, but a source indicated the FSA had not yet given its approval to any official or final prospectus being published by Rosneft.

The Kremlin forced the sale of Yuganskneftegaz after claiming billions of pounds worth of back taxes from Yukos and jailing its founder and chief executive Mikhail Khodorkovsky.

Rosneft, which holds most of its assets in western Siberia and around the Sakhalin Island area, where ExxonMobil and Shell are active, has always said it would discuss its acquisition of Yuganskneftegaz in the prospectus.

The Yuganskneftegaz production company accounts for 70% of Rosneft’s oil and gas output, which last year amounted to 1.56million barrels a day.

Yukos is still a 23% shareholder in Yuganskneftegaz but said yesterday it too had yet to see a copy of the Rosneft prospectus. “I presume as a shareholder we should get a copy but we have not seen anything yet,” said a Yukos spokeswoman in London.

She said the FSA should halt the IPO because one of the four core charter responsibilities was not to allow any float by companies under risk from criminal proceedings.

“The question is why get Rosneft when I have Lukoil. If the price comes down we might look at it,” said Mark Mobius, one of the world’s biggest emerging market players, who manages $30bn of assets for Templeton.

“The success of the IPO will crucially depend on Russian investors. US investors will be very sceptical because of the litigation risk. International investors who’ve had a large exposure to Yukos will also be sceptical,” Florian Fenner, a Moscow-based fund manager at UFG Asset Management said.

Many top Western equity analysts are unable to give a view on Rosneft because their firms are acting as financial advisers. This has raised questions among critics about whether it was done on purpose, something denied by Yukos. The four lead advisers are ABN AMRO, JP Morgan, Morgan Stanley and Dresdner Kleinwort Wasserstein.

The big league

Market capitalisation of top stock-listed oil companies in the world:

ExxonMobil $350bn

BP $224bn

Shell $213bn

Total $146bn

Chevron $130bn

ENI $104bn

ConocoPhillips $101bn

Rosneft $80bn

Lukoil $60bn

Statoil $57bn

Repsol $33bn