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Rosneft May Overpay With $3 Billion Bid to Gain Itera, Banks Say

OAO Rosneft may be overpaying if it goes ahead with reported plans to buy the remaining shares in an Itera natural gas venture for about $3 billion, according to Sberbank CIB and VTB Capital.

Rosneft plans to close the acquisition of the 49 percent of Itera that it doesn’t already own in the next two months, Kommersant newspaper said today, citing an unidentified person.

“Rosneft is paying a rather hefty price for the gas assets without any major growth upside,” Sberbank CIB analysts Oleg Maximov, Alex Fak and Valery Nesterov wrote in a research note today. Sberbank valued the 49 percent share in the Itera units, where production is in decline, at $2.7 billion.

Rosneft became the world’s largest publicly traded oil producer by output this year after a $55 billion deal to buy Russia’s third-largest producer, TNK-BP. In a bid to boost its natural gas business, the state-run company clinched supply contracts with utilities and formed the venture with Itera.

Rosneft spokesman Vladimir Tyulin and Itera spokesman Alexander Goryunov declined to comment on the Kommersant report.

Rosneft seeks to boost natural gas output from an estimated 41 billion cubic meters this year to 100 billion cubic meters in 2020, according to an April 25 investor presentation.

The bid looks expensive at $78 per barrel of oil equivalent of output, VTB Capital analysts Dmitry Loukashov, Alexander Kirevnin, Ekaterina Rodina and Elena Kopylova wrote in a research note today.

“We would expect to see a negative market reaction” if the deal materializes, the VTB Capital analysts wrote.

Rosneft rose 0.6 percent to 212.81 rubles by 1:35 p.m. in Moscow trading, compared with a 1.4 percent gain in the 50-stock Micex Index.

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