Predictable risks

The advertising campaign for the main event on the Russian stock market is in full swing. We are, of course, talking about the privatization of a large stake in Rosneft, the last state-owned vertically integrated oil company. Two years ago this event would not have caused such a stir. High oil prices would certainly fuel interest in the latest oil asset put up for sale by the Russian government. But at that time, Rosneft, both in terms of reserves and production, was one of the outsiders among the Russian oil giants, and, at best, there could be talk of its annexation to one of the large empires.

The situation changed dramatically after, on one of the last days of 2004, the unknown company Baikalfinancegroup, at an auction that did not last even half an hour, acquired Yuganskneftegaz, the main producing asset of the state-destroyed Yukos company, for $9.3 billion. It soon became clear that the state-owned Rosneft was behind the mysterious Baikalfinance Group, and the deal became the first experience of such a large-scale nationalization in modern Russia. For Rosneft itself, this was also a turning point: Yuganskneftegaz produced twice as much oil as its new parent company. Thanks to this purchase, Rosneft, which had vegetated among the outsiders, began to claim leadership in the industry. Therefore, the current sale of its stake looks completely different. There is no longer talk that the state will sell the last oil company to someone, losing control over it. The upcoming IPO will only allow portfolio investors to receive a share of the oil company's profits and make money on the growth of its shares during periods of rising oil prices, without claiming the opportunity to influence the company's policies and management methods.

One of the ways to atomize the company’s minority shareholders and prevent the emergence of a shareholder who would own a blocking stake would be to implement a plan for the widespread sale of shares to the public using Sberbank’s branch network. However, Rosneft expects to receive fixed assets through placement on foreign stock exchanges. Moreover, the managers of the state-owned company have grandiose plans: the securities should be traded on all major stock exchanges from Tokyo to New York.

The world's stock market is quite interesting. During periods of stock market boom, investors buy shares without paying too much attention to negative information related to a particular company or the market as a whole. At the beginning of the year, the Russian market grew rapidly, hitting one historical high after another. He was supported by the price of oil, which soared above $70 per barrel due to fears of the outbreak of a military conflict in Iran, which does not want to give up the people's dream of a peaceful atom. Particularly impressive results were demonstrated by the state-owned Gazprom, which caught up and surpassed almost all the world's oil and other companies in capitalization. It seemed that just a little more, and the new “world champion” would ascend to the podium to the sounds of the Russian-Soviet anthem. Under these conditions, Rosneft’s IPO was pictured to its managers and government officials in a crimson color, promising astronomical sums for an oil asset so scarce in modern times. It was planned to attract more than in the entire history of Russian privatization. The figures mentioned were both 15 and 20 billion dollars.

However, in May the situation changed significantly. Emerging markets, which include the Russian one, have begun to adjust. Moreover, the correction after rapid growth turned out to be a landslide. Markets in oil-exporting countries such as Saudi Arabia and Russia rose the most and fell the most. In conditions of a falling market, investors begin to behave very carefully, reacting exaggeratedly nervously to every problem and meticulously studying every little detail related to the securities they are buying. And Rosneft has more than enough of the notorious “little things”.

To begin with, the acquisition of Yuganskneftegaz still looks like a rather dubious deal, carried out in the best traditions of “shares-for-shares auctions.” Details emerged when Rosneft, on the eve of the IPO, was forced to disclose reports that showed the participation of Chinese banks and the fact that the asset was actually acquired with budget funds channeled through Vneshtorgbank. Under the current authorities, hardly anyone will dare to challenge the deal, at least in Russia, but the current authorities will not do it forever; moreover, less than half of President Putin’s second term remains. Institutional investors - mutual funds, insurance funds and pension funds - may be cautious and limit themselves to buying minimal packages, as they prefer longer-term investments.

The similarity with share-for-shares auctions is complemented by the fact that the state-owned Rosneftegaz, which owns 100% of the shares of Rosneft, also participated in the return of the controlling stake in Gazprom to the state, purchasing the missing 10.74% of the shares for $7.5 billion. To do this, he was forced to take out a loan for the specified amount from four Western banks - ABN Amro, JP Morgan, Morgan Stanley and Dresdner Kleinwort Wasserstein - which will act as the main Western underwriters of the upcoming Rosneft IPO. The most interesting thing is that the collateral for this loan is 49% of Rosneft shares. Formally, if the placement of shares does not go as planned by its organizers, and money cannot be raised to repay the loans, almost half of the company’s shares will go to creditors. Even more interesting is the situation with the debt of Rosneft itself. It would not be amiss to recall that Yuganskneftegaz should have gone to Gazprom, just like Rosneft itself. However, an American court intervened in the case, prohibiting the sale of YUKOS assets until the consideration of the claim of its shareholders was completed. Under these conditions, Western banks did not dare to give a loan to Gazprom. And then the head of Rosneft, Sergei Bogdanchikov, with a lightning-fast rush to the east, saved the endangered auction by reaching an agreement with the Chinese CNPC. The comrades from Beijing paid little attention to the decisions of the court located in distant Texas, since neither they nor the Russian assets fall under the jurisdiction of the state of Texas, and they lent the money very willingly. Moreover, Yukos has traditionally been involved in supplies to China, and it was the oil produced by Yuganskneftegaz that went there. Official speakers from both companies prefer not to talk about what CNPC received in return. There are two versions: a share of Yuganskneftegaz shares, which in the process of Rosneft’s transition to a single share was supposed to turn into shares of Rosneft itself, or guaranteed long-term supplies at a fixed price (figures with references to “informed sources” were called different - from 17 to 35 dollars per barrel). If this kind of contract really exists, then it calls into question Rosneft’s potential ability to compete on equal terms with other oil companies that are not bound by any rigidly fixed prices. Finally, the meticulous investor will pay attention to the fact that the cost of production of one barrel of oil by Yuganskneftegaz with the change of owner inexplicably increased from 1.7 to 3.5 dollars.

An IPO is usually preceded by a large-scale advertising campaign designed to convince investors that they have a unique opportunity to purchase an excellent asset at a reasonable price. In the case of Rosneft, one cannot help but pay attention to the active anti-campaign in the Western press. There are just as many, if not more, negative comments than positive ones. The tone and argumentation of these comments are different: from the pathetic - “You cannot finance the Russian Gulag” to the bewildered - “We already bought these assets once, only then they were called YUKOS shares.” In a rising market, investors most likely would not have paid any attention to this, but after the sobering fall in May, it cannot be ruled out that there will be fewer buying enthusiasts.

However, one cannot help but admit that Rosneft, with its state status, has a huge advantage in the form of hypothetical state support and guarantees. You don’t have to look far for an example: Gazprom’s impressive successes in the field of attracting portfolio investors require no comment. In essence, Rosneft claims to be the Russian “oil Gazprom”. However, even here everything is far from so simple. Rosneft, which already seemed to have been “swallowed and digested” by Gazprom, not only managed to deprive the gas monster of a pleasant dessert, but also stole the most “delicious” Russian oil asset from under its nose, and such things are not forgiven . Sergei Bogdanchikov and his Kremlin patrons have made no less influential enemies in the person of Alexei Miller and his Kremlin “curators.” This antagonism will be superimposed next year by the struggle of clans close to Vladimir Putin for the right to nominate a successor from their ranks for the next presidential term. And in the event of the defeat of a group associated with Rosneft, it is difficult to predict what will happen to the company. At best, the management there will change. Such a development of events, of course, will hit shareholders, but they will not all lose. However, a worse option is also possible – variations on the theme of the “YUKOS case”.