Rosneft to Buy Back TNK-BP Minority Shares at Market Premium

OAO Rosneft, Russia’s biggest oil company, will buy stock at a premium from minority shareholders in the crude producer it acquired in a $55 billion deal, reversed its position.

State-controlled Rosneft will comply “voluntarily” with a government order to purchase the stock in the former TNK-BP Holding, Chief Executive Officer Igor Sechin said today during an exchange with Prime Minister Dmitry Medvedev at an investor conference in Sochi, Russia.

Rosneft took over TNK-BP after a decade-long partnership between BP Plc and a group of billionaires soured, becoming the world’s biggest publicly traded oil producer by volume. Last year Sechin said Rosneft wouldn’t owe anything to minority owners in the traded unit, now called RN Holding, raising an outcry among investors and cutting the stock price.

“This is a decent decision,” Stanislav Kopylov, who helps manage about $3 billion, including shares of RN Holding, at UralSib Asset Management in Moscow, said by phone. “I think President Putin ordered Sechin to do this. Major investors have fled Russia, citing the TNK-BP minorities story, and it’s hard to get these people to return.”

The price will be set at an 18-month weighted average, or a premium of 20 percent to 30 percent to the current market price, Sechin said. The board will review the buyout plan today, he said. Minority shareholders held less than 5 percent of the unit.

‘Good Step’

RN Holding surged 12 percent to 60.20 rubles at the close in Moscow, the biggest jump on record. The shares extended this month’s gains to 25 percent, reaching the highest level since March 12.

UralSib and Prosperity Capital Management Ltd. said the stock was rising on the prospects of a payout.

“There were some signs on the ground that people could read themselves,” Mattias Westman, CEO of Prosperity, which manages about $4.5 billion of Russian assets, said by phone in London. Rosneft is offering to lend $1.8 billion to the unit “and there isn’t any other reasonable way for them to use it than to spend it on the minorities,” he said.

Prosperity didn’t buy “big” stakes in RN Holding in September, Westman said. The 18-month average isn’t “very high,” he said, adding the fund is waiting for an exact bid.

RN Holding’s market value, about $28 billion based on today’s share price, is still 40 percent below the high in March of last year. The TNK-BP venture has been valued at 1.93 trillion rubles ($60 billion) by its auditors, 167 billion rubles higher than the deal value, Sechin said.

Reputation Risk

Rosneft’s decision not to buy out minority stakes and a move to end its dividend policy sent TNK-BP Holding’s shares tumbling 17 percent on Oct. 23. After Rosneft closed the deal and approved possible borrowing limits from the venture, the stock dropped 26 percent on March 26, its most on record.

Prosperity and other investors, including Templeton Emerging Markets Group and Allianz Investments, the asset-management arm of Europe’s biggest insurer, said at the time that Rosneft was putting Russia’s reputation at risk.

Sechin, who bought about $66 million of Rosneft stock last month, thanked Medvedev for announcing the plan and boosting the state-run company’s share price. Rosneft gained 0.9 percent to 265.40 rubles.

‘Too Late’

“We wish this was a spontaneous conversation but it was not,” Luis Saenz, head of equity sales and trading at BCS Financial Group, said in an e-mailed note.

Medvedev had set up the issue by saying state companies should lead the way in “responsible behavior,” proposing that Rosneft buy out minority shareholders.

“Given your concern, I think even though the company has no legal obligation to buy these stakes, we will carry out the task the government has set before us voluntarily,” Sechin said.

Not all investors were cheered by Sechin’s promise.

“Overall this is a good move but now it’s too late,” Oleg Popov, who manages $1 billion of securities for Allianz Investments, said by phone in Moscow. “The group of minorities in TNK-BP has changed a lot over the past year. This won’t be good for the investment climate because they had waited for so long.”

Allianz Investments sold stock last year in TNK-BP Holding, as the unit was then known.

Russian equities have the cheapest valuations among 21 emerging economies tracked by Bloomberg. The Micex Index’s 12-month estimated price-to-earnings ratio was at 4.3 today, compared with a multiple of 10.5 for the MSCI Emerging Markets Index.

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