Surgutneftegas Reveals $29.7 Billion Cash Under New Accounts

OAO Surgutneftegas, Russia’s third-largest oil producer, reported it has 921 billion rubles ($29.7 billion) of cash and deposits in its first results under international standards in more than a decade.

The Surgut, Russia-based company is complying with a 2011 law for companies listed in Moscow as the capital seeks to become a financial hub. Analysts had expected cash holdings of $28 billion, according to a Bloomberg survey.

Surgutneftegas, which produces more oil than the U.K., had a market value of $32 billion at close yesterday. Questions about the company’s ownership and plans for the cash pile, as well as the lack of international reporting, have weighed on the share price.

“It’s positive the cash is there, we now have to see what’s next,” Alexander Nazarov, an oil and gas analyst at OAO Gazprombank, said by telephone. “We still don’t know now who controls the company and what the strategy is of the controlling shareholders.”

Surgutneftegas ordinary shares slumped 4.5 percent, the biggest decline in a month, to 26.681 rubles in Moscow. Its preferred shares gained 0.6 percent to 21.835 rubles.

“The cash pile is roughly what the market expected and there is nothing to suggest shareholders will ever benefit from it,” Julian Rimmer, an equities trader at CF Global Trading in London, said by e-mail today. “It’s a case of buying the hype and selling the reality.”

Bought Stock

The common stock has fallen 47 percent from a record 50.175 rubles in May 2006, while preferred shares are down 42 percent in the same period. That year, the company bought 111 million rubles of voting stock, according to its report.

Surgutneftegas reported that it had 650,000 voting shares in treasury at the end of 2012, less than 0.2 percent of its ordinary shares. When it reported under U.S. Generally Accepted Accounting Principles in 2001, it held a stake of about 40 percent in treasury. Analysts didn’t expect any significant treasury share holding, according to a Bloomberg survey.

Surgutneftegas didn’t provide an explanation for the disappearance of the treasury shares, which would be worth $15 billion at current prices, Alexander Burgansky, an oil and gas analyst at Otkritie Capital, said in an e-mailed statement.

‘Grave Consequences’

The disappearance “will have grave consequences for investor perception of Russia’s investment climate,” Burgansky wrote today.

Surgutneftegas’s cash and deposits rose about 7 percent from the 860 billion rubles of cash and deposits it held at the end of 2011, according to the statement. At the end of last year, it reported cash and equivalents of 41 billion rubles, short-term deposits of 328 billion rubles and long-term deposits of 552 billion rubles.

The oil producer had deposits of 384 billion rubles in OAO Sberbank, Russia’s largest bank, as of Dec. 31, according to the statement. It kept 169 billion rubles in Unicredit Bank, 169 billion rubles in OAO Gazprombank and 136 billion rubles in state-run VTB Bank, according to the statement.

“The cash is absolutely there,” said Ronald Smith, an oil and gas analyst at ZAO Citibank, said by telephone from Moscow. “It adds credibility to Russian reported numbers. We had been expecting slightly under that, so that’s also positive.”

Audited Results

One “suspicious” thing is that the IFRS results weren’t audited by a Big Four accountancy firm, Alexei Kokin, an oil and gas analyst at Uralsib Financial Corp, said by e-mail today.

The financial statement, which doesn’t give the name of the auditor, was prepared by Rosexpertiza, Kokin said.

Net income fell to 180 billion rubles from 275 billion rubles the previous year under International Financial Reporting Standards, according to the statement. That is more than 2012 net reported to Russian standards, Smith said.

“Investors should be pleased with this new level of transparency,” Tim McCarthy, who oversees more than $1 billion of assets in Russia and other emerging markets at Valartis in Geneva and who holds the company’s preferred shares, said in e-mailed comments. “But sometimes, transparency can reveal undesirable information.”

(Closes shares in fifth paragraph.)
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