The national oil company of Russia is preparing to offer shares to the public on Friday at a price in the higher range of its advisers’ suggestions in an attempt to present the sale as a success on the eve of the Group of 8 gathering.
Rosneft executives were pressing for more than $7.50 a share, the price recommended by their banks. At that price, the company would be valued at more than $76 billion, making the Kremlin-orchestrated offering the world’s fourth-largest initial public offering, according to bankers and Russian news reports. The suggested price for the shares was $5.85 to $7.85.
The unusual offering of about 20 percent of the company puts oil assets on the market that were effectively nationalized by the Russian government just 19 months ago after the breakup of the Yukos oil company. That breakup came at great financial loss to some of the same investors involved in the bidding this summer. Roughly 60 percent of Rosneft’s oil production comes from fields once owned by Yukos.
Rosneft is not yet clear of all its legal challenges, either. Yukos filed suit in a British court Thursday to block the stock listing on the London Stock Exchange.
Earlier this week, the British Financial Services Authority, the equivalent of the Securities and Exchange Commission in the United States, rejected a request by Yukos to ban trading in Rosneft shares. Yukos’s lawsuit, and a request for a temporary injunction, is an appeal of that ruling, Reuters reported.
Analysts say that despite a slump in emerging markets and the company’s murky history, Rosneft seems to be in a position to argue for a high initial price, a testimony to the interest in energy assets during a time of tight global supply. The shares in the public offering, for 14.9 percent of Rosneft stock, will trade on the London Stock Exchange and on two exchanges in Russia, Micex and RTS.
“They’ve been aggressive with their pricing,” said one banker, who did not want to be named because his company was advising on the offering. “It doesn’t strike me as impossible.”
Setting the price for the offering is the final step before trading can begin Friday, a day before President Vladimir V. Putin acts as host of the Group of 8 industrialized nations in St. Petersburg. Russia chose energy security as a focus for the meeting, which is to be attended by President Bush and leaders from Europe and Japan. The timing of the Rosneft offering is no accident.
J. P. Morgan Chase, Morgan Stanley, ABN Amro and Dresdner Kleinwort Wasserstein, which advised Rosneft on the offering, discussed the pricing with Rosneft executives.
Because of the offering’s size, and what critics say is an order from the Kremlin that the offering occur before the G-8 meeting, Rosneft and the Russian government opened other less traditional outlets for the stock as well.
The shares were offered to the Russian public over the counter in the state bank, Sberbank, and in other retail banks. To spur demand, Sberbank managers sent a memorandum to branch directors setting quotas for sales of shares directly to the public, the Gazeta newspaper reported.
Finally, Rosneft offered blocks of up to 2 percent to foreign oil companies, which reportedly account for much of the demand for Rosneft stock, so that the issue resembles more a private placement than an initial public offering. BP of Britain, the China National Oil Company and Petronas, Malaysia’s state oil company, bid on the stock, according to company statements and analysts. These three companies may account for more than 50 percent of the demand, Reuters reported.
A number of Western hedge funds investing in Russia, meanwhile, said they spurned the deal because of Rosneft’s highly leveraged financial condition.
“They have huge investment obligations and large debts,” said Harvey Sawikin, co-manager of the New York-based Firebird Russia Fund.
News source: nytimes.com
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