Rosneft Sale of TNK-BP Stake Raises Concerns of Squeeze OutJake Rudnitsky
OAO Rosneft’s sale of almost 10 percent of RN Holding to undisclosed parties, after buying the oil unit in its $55 billion acquisition of TNK-BP this year, has sparked concern that it may squeeze out minority shareholders.
Analysts from JPMorgan Chase & Co., VTB Capital and Prosperity Capital Management asked Rosneft executives on a call yesterday to explain the 97 billion-ruble ($3 billion) sale. That’s less than Rosneft paid per share for TNK-BP, Russia’s third-largest oil producer, or offered to minority investors in the unit, which holds most of the TNK-BP venture’s assets.
President Vladimir Putin, facing the weakest economic growth since 2009, urged Rosneft this month to pay RN Holding investors market price, aiming to counter accusations of poor corporate governance. Prosperity and Templeton Emerging Markets Group have criticized Rosneft’s offer as too low.
“This is one of the reasons why Russian-listed equities trade at a large discount to other markets,” Jack Arnoff, a partner at Elbrus Capital Partners in London, which used to own TNK-BP shares, said by phone.
Rosneft Chief Executive Officer Igor Sechin said last year and has reiterated since that the company has no obligation to buy out minority shareholders, who held about 5.3 percent of RN Holding, given the structure of the deal.
The oil company’s board approved an offer to minority shareholders of 67 rubles a common share and 55 rubles a preferred share last month, a discount to the price it paid London-based BP Plc and a group of Russian billionaires under the TNK-BP deal and higher than the average price per share for the 10 percent sold to unrelated third parties. Rosneft reported the sale in its third-quarter financial statement yesterday.
On Oct. 18, Rosneft applied to the markets regulator to make a voluntary offer for as much as 15.3 percent of RN Holding, including preferred stock, according to a filing.
“Rosneft has taken heat from the president and prime minister, who told it to play by market rules,” Anton Panchenkov, a Moscow-based lawyer at Goltsblat BLP, said today by phone. “It’s all formally legal under Russian law.”
Rosneft declined 0.5 percent to 252.42 rubles by 2:37 p.m. in Moscow, after reversing gains yesterday to close little changed. RN Holding was little changed at 64.20 rubles.
The sale may allow Rosneft to exploit a loophole in Russian law to force a mandatory buyout offer, according to Alexander Shevchuk, deputy executive director of the Moscow-based Investor Protection Association. Companies have the right to make such a bid if they buy more than 10 percent of a target to consolidate a stake of more than 95 percent. If Rosneft buys back the shares it sold, it could make a mandatory offer for any outstanding shares, Shevchuk said.
“They appear to strive to squeeze out minority shareholders,” Shevchuk said by phone from Moscow. “It doesn’t look good from a state-owned giant.”
Svyatoslav Slavinskiy, Rosneft’s vice president for finance, fended off questions about the sale and the possibility of a squeeze out on the analyst call, saying the company hasn’t received any offers to buy back stock.
“We sold at a price we found attractive at the time of sale,” Slavinskiy said. He declined to discuss Rosneft’s voluntary offer to RN Holding shareholders, citing regulatory restrictions.
Rosneft sold the stake in order to pay down debt, Vedomosti reported today, citing an unidentified person with knowledge of Rosneft’s plans. Net debt more than tripled from a year earlier to 1.9 trillion rubles on Sept. 30.
Sechin declined to comment on the sale of the 10 percent stake yesterday, saying he “didn’t remember” anything about the topic.
Rosneft’s third-quarter profit jumped to 280 billion rubles, including a gain from TNK-BP after it was valued at $5.2 billion more than the acquisition price, the Moscow-based company said in a statement on its website. Excluding that, net income attributable to shareholders fell about 25 percent to 141 billion rubles from a year earlier.
Rosneft will boost dividends for 2013 by 3.94 rubles a share after it recorded the revaluation gain, according to a presentation on its website. Dividends are calculated as 25 percent of net income.
“We made significant progress in delivering our strategic goals,” Sechin said in the statement.