Rosneft Sale of TNK-BP Stake Raises Concerns of Squeeze Out Plan

OAO Rosneft sold almost 10 percent of RN Holding to unrelated parties, after acquiring the oil unit as part of its $55 billion acquisition of TNK-BP this year, sparking concerns that it may squeeze out minority shareholders.

Rosneft sold the stake in the third quarter for 97 billion rubles ($3 billion), according to a financial report yesterday. Analysts from RN Holding shareholder Prosperity Capital Management, VTB Capital and JPMorgan Chase & Co. asked Rosneft executives on a public call to explain the deal. The stake was sold at a lower average price than Rosneft paid for Russia’s third-largest oil producer or offered to minority investors in the traded unit, which holds most of TNK-BP’s assets.

President Vladimir Putin urged Rosneft this month to pay RN Holding shareholders market price. His government is seeking to counter accusations of poor corporate governance at state companies and attract investment into the economy, which has slumped to its weakest pace since 2009. Prosperity and Templeton Emerging Markets Group have said Rosneft’s offer is too low.

“This is one of the reasons why Russian-listed equities trade at a large discount to other markets,” Jack Arnoff, a partner at Elbrus Capital Partners in London, which used to own TNK-BP shares, said by phone.

Rosneft Chief Executive Officer Igor Sechin said last year and has reiterated since that the company has no obligation to buy out minority shareholders, who held about 5.3 percent of RN Holding, given the structure of the deal.

Buyout Loophole

The oil company’s board approved an offer to minority shareholders of 67 rubles ($2.09) a common share and 55 rubles a preferred share last month, a discount to the price it paid London-based BP Plc (BP/) and a group of Russian billionaires under the TNK-BP deal, while higher than the average price per share for the 10 percent sold to undisclosed parties.

On Oct. 18, Rosneft applied to the regulator to make a voluntary offer for as much as 15.3 percent of RN Holding, including preferred stock, according to a regulator filing.

Rosneft reversed gains of as much as 1.5 percent and closed little changed at 253.70 rubles in Moscow. RN Holding was unchanged at 64.17 rubles at the close in Moscow yesterda

The sale may allow Rosneft to exploit a loophole in Russian law to force a mandatory buyout offer, according to Alexander Shevchuk, deputy executive director of the Moscow-based Investor Protection Association. Companies have the right to make such an offer if they buy more than 10 percent of a target to consolidate a stake of more than 95 percent. If Rosneft buys back the shares it sold, it could make a mandatory offering for any outstanding shares, Shevchuk said.

‘Squeeze Out’

“They appear to strive to squeeze out minority shareholders,” Shevchuk said by phone from Moscow. “It doesn’t look good from a state-owned giant.”

Svyatoslav Slavinskiy, Rosneft’s vice president for finance, fended off questions about the sale and the possibility of a squeeze out on the analyst call, saying the company hasn’t received any offers to buy back stock.

“We sold at a price we found attractive at the time of sale,” Slavinskiy said. He declined to discuss Rosneft’s voluntary offer to RN Holding shareholders, citing regulatory restrictions.

Sechin declined to comment on the sale of the 10 percent stake yesterday, saying he “didn’t remember” anything about the topic.

Rosneft’s third-quarter profit jumped to 280 billion rubles, including a gain from TNK-BP after it was valued at $5.2 billion more than the acquisition price, the Moscow-based company said in a statement on its website. Excluding that, net income attributable to shareholders fell about 25 percent to 141 billion rubles from a year earlier.

Rosneft will boost dividends for 2013 by 3.94 rubles a share after it recorded the revaluation gain, according to a presentation on its website. Dividends are calculated as 25 percent of net income.

“We made significant progress in delivering our strategic goals,” Sechin said in the statement.

To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.