The largest foreign fund manager focused on Russia said the country’s reputation is at risk after OAO Rosneft’s $55 billion takeover of TNK-BP landed the state-run oil producer in a fight with minority shareholders.
Prosperity Capital Management is looking to team up with fellow investors in the TNK’s traded unit, OAO TNK-BP Holding, and seek redress after Rosneft’s plan to borrow money from the company rather than paying dividends sent the shares to a record low this week. Rosneft said its move was standard practice.
The biggest takeover in Russian history strengthens the state’s hold over oil and gas production, the source of half its budget revenue. The government is trying to turn Moscow into a global financial hub to attract investors and shift the economy away from resource dependence.
“The whole country’s reputation will suffer if a big company like Rosneft can behave like this,” Prosperity CEO Mattias Westman, who helps oversee about $4 billion in Russian assets, said by phone from Texas. “We will be talking to other investors and communicating directly with Rosneft on this.”
TNK-BP Holding fell the most since trading began on the Micex, retreating 26 percent to a record low on March 26. The biggest previous one-day decline came in October when Igor Sechin, Rosneft’s chief executive officer, warned that the company may end TNK-BP’s dividend policy and had no plans to buy them out.
A buyout based on the average price during the last six months would require about $700 million, according to Luis Saenz, head of equity sales at BCS Financial Group in London.
Rosneft became the world’s largest publicly traded oil producer through the TNK-BP deal with output of more than 4 million barrels of crude a day, exceeding the output of Canada or Iraq. The company may borrow about $9.7 billion from TNK-BP, including as much as $3.6 billion from TNK-BP Holding, after its March 21 board decision.
Cash-pulling is a standard practice and allows the company to manage liquidity, a Rosneft official said when the board decision was announced on March 26, asking not to be identified in line with corporate policy. The official didn’t immediately respond yesterday to a request for comment on borrowing plans or possible distribution of TNK-BP profit.
BP Plc, which owns almost 20 percent of Rosneft after using $4.87 billion of the proceeds from selling its half of TNK-BP to buy the state company’s stock, declined to comment, Vladimir Buyanov, a spokesman in Moscow, said by e-mail.
Rosneft isn’t obliged to buy out minorities because the TNK-BP venture holds the traded unit through a chain of subsidiaries, Westman said. Still, “profit in TNK-BP belongs to all shareholders” and Rosneft could avoid exposure to double taxation on dividends by eliminating the intermediary companies registered outside Russia, he said.
Prosperity sold some of its TNK-BP shares last year, Westman said, declining to disclose its current holding.
“Although formally this is legal, this isn’t a very humane move toward investors,” Oleg Popov, who manages about $1 billion in assets for Allianz Investments, the asset management arm of Europe’s biggest insurer, said by phone in Moscow. Allianz sold its remaining TNK-BP Holding shares after Rosneft closed the deal on March 21, he said.
“I’m glad that we sold most of our shares back in the fall,” Popov said. “This used to be a really great company with high dividends, now we’ll have to look for a replacement.”
Templeton Emerging Markets Group Chief Executive Chairman Mark Mobius said minority shareholders of TNK-BP Holding are uniting to protect their interests, Vedomosti reported yesterday. Mobius didn’t immediately respond to an e-mailed request for comment.
“You can’t describe the way Rosneft has been treating TNK-BP minorities with appropriate words,” said Stanislav Kopylov, who helps manage about $3.4 billion at UralSib Asset Management in Moscow, adding that its interest is small enough that the fund “isn’t sensitive to these actions.”
Last year, Prosperity headed an effort to protect shareholders’ interests before being “rebuffed” by Rosneft, Kopylov said by phone. UralSib Asset Management hasn’t yet been invited to cooperate with other TNK-BP investors, he said.
“Any talks about Moscow as a global financial center and jacking up Russia’s ranking in global corruption indexes now sound like a bad joke,” Timo Rossi, a portfolio manager at Northern Star, a Helsinki-based fund that manages about 70 million euros in assets, said by e-mail. The fund has about 4 million shares in TNK-BP, he said.
“One does not need to be an economist to understand how damaging Mr. Sechin’s comments are to an economy increasingly dependent on foreign capital.”