Sibneft and Production Control
// The state will become the largest oil producer
Deprivatization
Gazprom and Sibneft announced the largest merger-acquisition deal ever in Russian history yesterday. The natural gas concern will control 75.679 percent of the stock in the country's fifth largest oil producer (by volume). This means that the state will control over 30 percent of oil production in Russia.
Gazprom and the Millhouse Capital Co., which manages the assets of the main stockholders in Sibneft (of whom Chukotka Governor Roman Abramovich is the largest), announced yesterday that they had “signed a document obligating them to the acquisition of 72.663 percent of the stock in Sibneft.” The value of the deal was $13.091 billion, that is, about $3.80 per share of Sibneft. Gazprom also announced that it had already obtained 3.016 percent of Sibneft that its subsidiary Gazprombank had bought on the market earlier. Kommersant has information that that deal cost Gazprom about $500 million. Thus, after the Millhouse deal goes through, Gazprom will own 75.679 percent of the stock in Sibneft, which excludes the possibility of a blocking package falling into anyone else's hands. (YUKOS now owns 20 percent of Sibneft, and Rosneft is making claims on it.)
The market, which has been rising all week due to rumors of the deal, came to yesterday and stabilized its quotations. The price of a Sibneft share on the RTS fell by 8.8 percent to $3.65, even though trading closed at the $3.80 mark. Gazprom quotations remained practically at yesterday's level with 149 rubles per share (up 0.82 percent).
The Gazprom management committee approved the deal yesterday and its board of directors is to consider it at its next session. Representatives of Gazprom, Millhouse Capital and Sibneft have refused to reveal the details of the deal. Gazprom has already reached an agreement in principle with a consortium of Western banks on a $12-billion credit. A short-term credit of $5 billion will be paid with funds received by the gas monopoly from the sale of 10.74 percent of its own stock to the state Rosneft oil company. Gazprom will pay for part of the deal with its own funds, for the sake of which the indicators of its financial investment were raised to 67.55 billion rubles.
Kommersant has information that, in addition to the Sibneft stock, Gazprom will obtain other Russian oil assets from Millhouse that Sibneft does not own outright, but is consolidating in accordance with US GAAP standards. Those assets include49.5 percent of the stock in Slavneft and its subsidiaries (TNK-BP has an equal share in them), 36.84 percent of the voting stock in the Moscow Oil Refinery and 49 percent in Sibneft-Yugra.
Slavneft representatives refused yesterday to discuss the long-term perspectives of that company and its subsidiaries. TNK-BP stated that all agreements between the co-owners of Slavneft remain in force and that it was ready to work with the new partner, including on the further division of Slavneft.
The Moscow Oil and Gas Co., which is controlled by the city mayor's office and owns 50.84 percent in the Moscow Oil Refinery, also refused to comment, but a source close to the city administration told Kommersant that Moscow Mayor Yury Luzhkov discussed the disposition of the refinery with Gazprom head Alexey Miller a month ago and, two weeks ago, met with Abramovich over the same topic. That source was unable to say whether any agreements were reached at those meetings. Henry Cameron, president of Sibir Energy, which is disputing Sibneft's right to a 49-percent share in Sibneft-Yugra, stated recently that he has informed the management of Gazprom and its potential creditors of his company's claims against Sibneft.
Kommersant has learned that Sibneft president Evgeny Shvidler yesterday sent a letter to company employees thanking for their part in founding the “most effective and dynamically developing oil company in the country” and for the use of “advanced technology to produce and refine oil and methods of corporate management.” He expressed confidence that the experience and knowledge of the company's managers “will be in demand for the realization of new and interesting projects.”
The Federal Antimonopoly Service press service told Kommersant yesterday that it had not yet received a petition from Gazprom for the acquisition of Sibneft. There should be no problems with approval from that agency, however. Anatoly Golomolzin, deputy chairman of the service, stated a week ago that the Antimonopoly Service saw no reason to object to the acquisition of Sibneft by Gazprom, since the gas concern “will not receive a dominant position on the market.”
Minister of Natural Resources Yury Trutnev, commenting on the deal yesterday for Kommersant, said that “on the one hand, that will make Gazprom the world's largest energy company, which will have a positive impact on the investment attractiveness of the company and on Russia as a whole. On the other hand, the deal creates a certain danger for the effectiveness of the management of the new oil assets and the possible monopolization of the market.” The minister also expressed certainty that Gazprom would overcome the management problem.
Representatives of the minority shareholders in Gazprom expressed the opinion that the deal was made under conditions favorable for the gas concern. Sergey Glazer, a representative of the Vostok Nafta Co., thought that Sibneft would become the main oil block in Gazprom, to which Gazprom would add its own reserves (13 million metric tons of oil production per year) and gain access to oil export. Vadim Kleiner, corporate research director of Hermitage Capital Management, thought that “the nationalization of the oil sector today is reminiscent of a room with two doors. From one side, in essence, is a buy up of the private stock of state companies and, from the other, the opposite process, the liberalization of the market for Gazprom stock and the IPO for 49 percent of Rosneft.”
Obviously, the process of returning oil assets to the ownership of state companies will continue. Rosneft will be able to take control over all the assets of YUKOS next year through the claims of Yuganskneftegaz against its former parent company and that company's main shareholders. Gazprom intends to develop shelf projects, cooperating with private companies. LUKOIL head Vagit Alekperov has stated that the companies intend to take part together in the tender for the Sakhalin-3 project.
After the purchase of Sibneft and half of Slavneft, by Gazprom, the share of state companies in Russian oil production will reach 31 percent (of which Rosneft and Yuganskneftegaz account for 18.5 percent of total production). It is possible that authorities will not stop there either. The remains of YUKOS are the next likely target for acquisition. They account for 5.5 percent of total oil production. If the idea of acquiring Surgutneftegaz, with its almost 14 percent of oil production, is revived (though a merger with Rosneft maybe), the state will have control over more than half the oil production in Russia.
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What Roman Abramovich Has Sold
In March 2002, rights to the development of the Mnogovershinnoe, Novoshirokoe and Darasun deposits were sold to the South African Highland Gold Mining Co. The value of that deal was not made public.
On May 23, 2002, Abramovich's management company, Millhouse Capital, sold a 1.26-percent share in Sibneft to the German investment bank UBS Warburg for $172.2 million.
On March 19, 2003, a 26-percent share in Aeroflot Russian Airlines was sold to the National Reserve Bank. The value of that deal was not made public. Media reports placed it at $133 million.
On August 1, 2003, Millhouse Capital sold Ogonek magazine to the Video International Co. The value of that deal was not made public.
On October 3, 2003, Abramovich sold a 25 percent of the stock in the Russian Aluminum Co. to Basic Element for $2 billion. As a result of that deal, Oleg Deripaska obtained control of 75 percent of the stock in the aluminum company.
On October 11, 2003, Millhouse Capital sold 27.5 percent of the stock in the Ruspromavto Co. to Basic Element. The value of that deal was not made public.
In October 2003, Abramovich sold 40 percent of the stock in Irkutskenergo and 70 percent f the stock in the Krasnoyarsk Hydroelectric Station to Basic Element. The value of that deal was not made public.
In March 2004, Millhouse Capital sold Yunimilk, the dairy branch of the Planeta Group, a major operator on the foodstuffs market, to Andrey Beskhmelnitsky and Andrey Blokh, two of the top managers at Planeta. The value of that deal was not made public.
In October 2004, Abramovich's last 25 percent of Russian Aluminum went to Basic Element for $1.5 billion.
On August 30, 2004, the Leader and Novgorodsky Myasnoi Dvor meat processing plants were obtained from Abramovich by the Gurman Group. Experts estimated the value of that deal at $3-5 million.
On August 10, 2005, Millhouse Capital sold the Marbiopharm vitamin plant to Biotek, a large distributor of medicinals. The value of that deal was not made public.
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Denis Skorobogatko, Natalia Grib
All the Article in Russian as of Sep. 29, 2005
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