Sistema to Raise Payout as Glencore Prompts $1 Billion Sale

AFK Sistema, the Russian investment group that exited oil producer OAO Russneft for about $1.2 billion this month, will use cash from the sale to increase dividends, billionaire owner Vladimir Evtushenkov said.

“Dividends will definitely grow next year,” Evtushenkov said in an interview in his Moscow office overlooking Red Square. “Proceeds from Russneft will definitely be included in the 2013 dividend mass and will boost the payout.”

With the sale of 49 percent in Russneft, Sistema is starting to deliver on promises of greater returns to investors. The proceeds from the deal show Russneft, where billionaire Mikhail Gutseriev and Glencore Xstrata Plc are partners, gained in value since its purchase for less than $100 million in 2010, having profited from rising oil prices in the next two years.

Sistema, which also controls Russia’s largest mobile-phone operator, made oil a focus for development in 2009, spending $2.5 billion to take control of refining and production assets combined into OAO Bashneft. After buying Russneft shares the following year, it began talks on merging the two.

Sistema sold its stake in Russneft after Gutseriev, the oil producer’s founder, and Glencore, its largest creditor and a shareholder in some of its units, opposed a proposed merger with Bashneft, Evtushenkov said.

‘Losing Influence’

“Glencore was against combining with Bashneft, they wanted to develop Russneft together with Mr. Gutseriev,” said Evtushenkov, who is Sistema’s chairman. “In a combined company, Glencore would have had only a small stake, losing influence over developing company strategy, including oil exports.”

Charles Watenphul, a spokesman for Baar, Switzerland-based Glencore, declined to comment.

Russneft lowered net debt to $5 billion by the end of last year, according to a statement. The company in 2011 had agreed with creditors Glencore and OAO Sberbank to cut rates on $6.2 billion of debt and extend maturities.

Sistema sold its stake in the oil producer to companies controlled by Mikail Shishkhanov and Felix Dlin, according to a regulatory filing. Both men have business ties to Gutseriev, and Shishkhanov is his nephew. Sistema has a three-month option to buy stakes in Russneft’s Urals-based production units in addition to the agreement, the statement shows.

Sistema rose as much as 1.7 percent today and traded up 0.1 percent at $20.76 as of 1:52 p.m. in London.

Output Boost

The Moscow-based investment group will continue to develop Bashneft’s production, Evtushenkov said. The oil company’s ordinary shares are valued at $11.5 billion and preferred shares at $1.3 billion based on today’s stock price. It raised output to 320,000 barrels a day in June, an increase of 39 percent since March 2009 when Sistema agreed to take control.

The holding company may also offer Bashneft shares on the market or to a strategic partner, according to the Sistema chairman.

While insisting there have been no talks on selling Bashneft after Vedomosti reported last month that state-run OAO Rosneft had been interested, Evtushenkov said he remains open to selling the business.

“There is no such word as ‘no’ in business, all depends on price,” he said. “When a businessman says it’s not for sale, he is not a businessman anymore.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE