“Bashneft” in one hand: why Rosneft has asked to buy the company

Photo: Andrey Rudakov/Bloomberg

After several months of debate, the government instructed its representatives in the Board of Directors of “Rosneft” to approve the purchase of the state stake in Bashneft. “Rosneft” offers the highest price, but the state had other ways to withdraw money from her, noted the experts

“Bashneft” in one hand?

First Deputy Prime Minister Igor Shuvalov has approved a Directive according to which the CEO of “Rosneft” Igor Sechin has until October 15 to sign a contract for the sale of 50.08% of “Bashneft” and get all the regulatory approval, said Thursday the government (the text of the Directive was published on its website).

The Directive was signed on Saturday, October 1, the day after the Minister announced the resumption of privatization of “Bashneft”, pending in mid-August for an indefinite period, told RBC two sources close to the Ministry of economic development. Just on Saturday a meeting of the Board of Directors of “Rosneft”, which was approved by the conduct “significant transactions” worth over $1.5 billion, reported the press service of the company. The details of the transaction the representative was not disclosed, but those close to the state-owned company sources said that it is just about the purchase of “Bashneft”.

The second Directive instructs the Shuvalov’s representatives in the Board of Directors of “Rosneft” to vote for the purchase of the state stake in Bashneft, the price should not exceed 330 billion rubles higher than in summer, E&Y estimated of 50.08% of the company by order of the government — in 297-315 billion. But Sechin, in late August suggested the government to sell the asset for $5 billion (312,3 billion at current exchange rates), reported Bloomberg.

On the directives of shares of “Bashneft” on the Moscow stock exchange, first rose slightly, then began to fall: common — 2.49% preference shares of 6.45% (18:37 MSK). In the end of 50.08% estimated market only 277,97 billion. Minority shareholders fear that in the event of a change of control to Rosneft, it will not declare the offer or it will be below the current value of the stock, the analyst of Raiffeisenbank Andrey Polischuk. Specified in the offer price of the shares may not be lower than their weighted average cost for the last six months, adds the partner of legal Bureau “Padva and Epshtein” Pavel Gerasimov (during this time, ordinary shares of “Bashneft” has risen 54.5%). For example, the transfer of “Gazprom” shares in regional gas companies such offer was not followed, and the “Rosneft” bought shares of “TNK-BP holding” in 2013-2014 from minority shareholders at a price below that which was expected, sellers.

However, the Directive Shuvalov does not mean that “Bashneft” will be sold in one hand without holding public auction, told RBC Federal official, and confirmed by a source in the Ministry of economic development. The Directive is permissive, argue both sides: this is the indication that Rosneft may participate in the transaction on privatization of “Bashneft”, but all details of the transaction, including whether auction or direct sale will be listed in the order of the government, which will be released separately. “Method of sale of shares of “Bashneft” will be reflected in the corresponding final disposal of the government,” ‘ said RBC assistant to the Minister of economic development Elena laskina.

A government spokesman did not specify when it will be issued such an order.

“Rosneft” against all

The Russian government adopted a decision on privatization of “Bashneft” along with other assets on 1 February. Then President Vladimir Putin said that in the course of privatization transactions need to ensure “maximum transparency”, and also pointed to the need to pay more attention to “quality of investors”: “we Need to future investors and purchasers looking for their own resources or loans, but not from state banks. The good of it will be a little bit”. Soon the press-Secretary of “Rosneft” Mikhail Leontyev told RBC that the company is not going to buy this asset. “How can one state-owned company to buy another? We these activities feed”, — he said.

By the summer the situation changed dramatically. “VTB Capital”, the appointed investment consultant of the government for the sale of “Bashneft”, gathered about ten applications from applicants, including LUKOIL, Tatneft, the Russian direct investment Fund (RDIF), an Independent oil and gas company controlled by the former President “Rosneft” Edward Khudainatov. But Rosneft, which has also applied for, entered into open polemics with the government and presidential administration on the subject of whether the right of Rosneft (69.5% of its shares belongs to state holding Rosneftegaz) in the privatization. “It’s kind of stupid to “Rosneft” were: one public, the company participated in the privatization of other”, — said journalists the Deputy President and Chairman of the Board of Directors of “Rosneft” Andrei Belousov. But the company did not withdraw their application. “And the government gave us Directive prohibiting to participate in the privatization? No!” retorted Sechin.

In order to settle this dispute, in mid-August, the government postponed the deal. And after 30 September, the privatization was suddenly resumed, “Rosneft” began to be the favorite in the race for “Bashneft”. This was stated by the head of Bashkortostan Rustem Khamitov and one of the contenders for the Fund Energy, owned by former energy Minister Igor Yusufov. “In the current situation we believe that the most attractive offer available to the company “Rosneft” is able to pay for the asset (of 50.08% of “Bashneft”) the amount in excess of $5 billion (which is the highest award of the government of the Russian Federation),” — said in a statement released Tuesday. And RDIF with international partners decided to withdraw, because the amount requested for the package of shares of “Bashneft” is much higher than the original estimate, said on Thursday evening the head of the Fund Kirill Dmitriev.

Back in August, in a letter addressed to the Minister of economic development Alexei Ulyukayev Sechin explained that the sales of state-owned stake of “Bashneft” will subsequently profitable to sell 19.5% stake in Rosneft (the asset is planned to be privatized by the end of 2016), reported by “Vedomosti” with reference to the copy of the letter. “Integration “Bashneft” with the subsequent sale of shares of “Rosneft” will allow not only to preserve the integrity of the assets of “Bashneft”, but will also support plans for the privatization of “Rosneft” at a premium to current market value through the monetization of synergies”, — he pointed out. Synergy Sechin estimated at 160 billion rubles.

The portfolio Manager of the GL Asset Management Sergey Vakhrameev considers the evaluation of possible synergies overestimated, and the sale of one state company to another company partly owned by the state calls “non-market-by-step”. In addition, Vakhrameev warns that in case of direct purchase by Rosneft of a controlling stake in Bashneft above the market value of the shares of “Rosneft” will not exceed the current market value: it will increase net debt and reduce cash balances. However, according to estimates by Raiffeisenbank, the purchase of this asset will allow “Rosneft” to attract new borrowing: at the end of the second quarter of 2016 on the accounts of the company was $22.4 billion, from the sale of shares in “Vankorneft” and “TAAS-Yuryakh” to the Indian investors, the company will receive another $4 billion: this would cover almost all of the debt obligations in the second half (the company must pay $4.7 billion).

The proposed Rosneft price for Bashneft was the largest, but the state could withdraw the money in the budget and other means, for example, through increased dividends, says Polishchuk of Raiffeisenbank. However, then I had to share with other shareholders, including BP (which owns a 19.75%), he adds. However, this year the government, on the contrary, made concessions of “Rosneft”, taking in the form of dividends only 35% of IFRS net profit (RUB 124.5 billion) instead of the previously planned 50% (177,5 billion rubles).

How to change the position of the government on the question of the admission of “Rosneft” to privatization of “Bashneft”

Igor Shuvalov, first Deputy Prime Minister (July 11, BFM.ru): “whether in such circumstances, when we have recently experienced the acquisition by Rosneft of TNK-BP to another private player, the company acquired? This has questions, because after all, we are conducting privatization not only in order to get the money in the budget, but we want to see changes in the structure of the economy, we want to the company was sufficient incentives for growth.”

Arkady Dvorkovich, Deputy Prime Minister (July 28, “statement”): “it Was decided not to allow to participate in the privatization of state-controlled companies, and this includes both direct control and indirect”.

Dmitry Peskov, press Secretary of the President (July 22, “RIA Novosti”): “the Understanding is that state companies can not participate, is really there, and really have a discussion, this understanding was recorded in the government and in the administration… It’s not a guideline, not a decree, is understanding.”

Dmitry Peskov (July 26, “RIA Novosti”): “According to the formal point of view, Rosneft is a state company, it’s just clear you can tell. But, of course, there are different points of view on this matter”.

Andrey Belousov, assistant to the President (July 28, “Interfax”): “It’s stupid to “Rosneft” were: one public, the company participated in the privatization of another.”

Alexei Ulyukayev, Minister of economic development (July 29, “RIA Novosti”): “From my point of view, “Rosneft” — the wrong buyer for this asset.”

Dmitry Peskov (3 August, “RIA Novosti”): “with regard to the participation of state companies and state-controlled companies in the privatization process, we have repeatedly talked about the dominant understanding that, of course, these companies should not be involved in the process of privatization”

Alexei Ulyukayev (4 August, “RIA Novosti”) : “state-owned companies should not be involved in privatization.”

Vladimir Putin (September 1, Bloomberg): “Having in mind that the control packet is from the state, it’s probably still not the best option when one company controlled by the state, acquires another, purely state-owned company. This is one position. And the second is that at the end of the total for the budget is important, who will give more money for trades that need to be done in the course of the privatization process. In this sense, we can’t discriminate against market participants, any of them, but it is not true, because the government decided the privatization of “Bashneft” to defer”.

Alexei Ulyukayev (2 September, “RIA Novosti”): “From the point of view of the law on privatization 174, there is a textual rule that in the event that the transaction is in the interests of stock market development, technology and so on, it is not subject to the requirement that the company, which has 25% or more [government involvement] is not allowed. Technically, under this provision, as well as from the fact that, formally, directly, it [Rosneft] is a state, but through a “layer”, that is “Rosneftegaz”, — formally, it is allowed [for privatization of “Bashneft”]”.

Igor Shuvalov (October 3, in the framework of the forum “Sochi-2016”): “Rosneft” will not be limited to participate in the auction”.


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