The company can buy out TNK-BP completely

TNK-BP, whose assets include a large network of gas stations in Ukraine, may become the property of Rosneft. The Russian state-owned company has almost agreed to purchase 50% from BP and is considering the possibility of buying out the remaining shares from the Russian co-owners, the AAR consortium. But the deal will require more than $50 billion, only part of which Rosneft can pay with its shares. AAR itself, which wanted to buy out BP’s share, failed to attract financing.

Today in London, Rosneft President Igor Sechin will hold regular negotiations with BP's management and shareholders on the acquisition of its 50% stake in TNK-BP, sources familiar with the discussion told Kommersant. According to one of Kommersant’s interlocutors, the deal is “in a very advanced stage.” But the state-owned company’s plans suddenly became much larger. Yesterday, the British TV channel Sky News reported that Rosneft and the AAR consortium entered into a preliminary agreement to sell another 50% stake in TNK-BP to the state-owned company. Rosneft and AAR do not comment on this information. According to Sky News, Rosneft may acquire a stake in AAR for $28 billion. Kommersant sources close to both parties acknowledge the possibility of such a deal. “But so far the agreements are preliminary, non-binding,” says one of Kommersant’s interlocutors.

Rosneft announced back in July that it was going to acquire BP's stake in TNK-BP. It is estimated at approximately $25 billion. The British company can receive part of the funds in cash, and part - in Rosneft shares, which belong to the state. The package size will be 10-12%. Kommersant's interlocutor, familiar with the progress of the negotiations, says that "the potential purchase of AAR's share will not affect the deal with BP." “These are two parallel processes; Rosneft is not going to refuse to acquire BP shares in TNK-BP,” he says.

AAR announced plans to sell its stake in TNK-BP in early October. “The consortium is considering a variety of scenarios,” says a source familiar with the details of the notice. But the process of negotiations between Rosneft and AAR may drag on. “If AAR is really ready to sell its stake, then negotiations will be held. But financing such a transaction is a very difficult issue, which has not yet been resolved,” says one of Kommersant’s interlocutors.

The agreements between Rosneft and BP, which were already discussed by the top management of the companies with Russian President Vladimir Putin in September, may be formalized in the near future. “It is planned to settle formal issues during Igor Sechin’s trip to London,” says one of Kommersant’s interlocutors. AAR will not become Rosneft's rival in this deal.

According to the source, as the deadline for submitting the AAR proposal approached, “it became obvious that BP did not intend to seriously consider the AAR proposal, and that in any case BP would give priority to Rosneft.” After a meeting of the consortium's shareholders last week, they sent a letter to BP, inviting the British company to normalize relations and remain partners in TNK-BP. According to another Kommersant interlocutor, AAR also proposed to pay about $6 billion in dividends to TNK-BP. The management of TNK-BP supported the payment of $4.1 billion. But BP responded that its priority option was to exit the oil company, a Kommersant source says.

Rosneft has different options for financing the transaction, notes Valery Nesterov from Sberbank Investment Research, from a syndicated loan to a preferential loan from Chinese state banks and attracting a partner. The state-owned company has the ambitious goal of becoming the world's largest player; the deal will also resolve the issue of management difficulties that will arise with the AAR consortium, the analyst notes. AAR's participation in the share capital of TNK-BP Rosneft is not necessary, because it will create management difficulties, especially if the consortium sells part of its shares to investors, says UBS analyst Konstantin Cherepanov. At the same time, he does not rule out that Rosneft will first acquire AAR’s share and will remain BP’s partner in the company, consolidating its share over time. According to Denis Borisov from Nomos Bank, after the consolidation of TNK-BP, the ratio of Rosneft’s net debt (now about $20 billion) to EBITDA will be 2, which is not a critical indicator: it was already at this level after the acquisition of Yukos assets and then it decreased significantly.

In Ukraine, TNK-BP owns the Lisichansky Oil Refinery and a network of 143 gas stations. On March 15, 2012, the Lisichansky Refinery announced the suspension of the production of petroleum products due to the fact that preferential conditions for the import of petroleum products were created in Ukraine, which makes their production in the country unprofitable. Earlier, the press service of the Lugansk Regional State Administration released a statement from its head, Vladimir Pristyuk, that businessman Dmitry Firtash was negotiating with TNK-BP about the purchase of the Lisichansk oil refinery.

Kirill Melnikov, Moscow; Oleg Gavrish

Newspaper "Kommersant Ukraine" No. 165 dated 10/18/2012, p. 5

Authors:

Kirill Melnikov

Themes:

Petroleum products market

Rosneft wants everything at once