Transneft Could Issue IPO

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Apr. 13 – Prosperity Capital Management, East Capital International and Vostok Nafta Investment, who own 17 percent of the monopoly’s privileged shares, have proposed issuing an IPO for Transneft.

Prosperity announced on Friday that they sent a letter to RF Energy Minister Sergei Shmatko, who heads the board of directors, and Deputy Prime Minister Alexei Kudrin.

They were prompted by Transneft President Nikolai Tokarev’s recent statement that to finance the investment program, the company may hold an additional issue noted in the letter. The company needs money (about US$2.4 billion) for the Zapolyarnoye-Purpe oil pipeline, and the “best option” is to increase the share capital, Tokarev said on March 24 on Russian TV channel Vesti-24, although bearing in mind that the emission would benefit the state. The state owned 100 percent of Transneft’s ordinary shares since its inception, but the privileged shares, which make up 21.9 percent of the capital, are going directly on the market.

Minority shareholders said that if Transneft floated additional common shares on the market, it would benefit everyone. The company would attract money, it would economize on the budget and, in addition, the development of “optimal model” rates “for the mutual benefit of the state, oil companies and private investors” would be accelerated at the expense of Transneft’s public status.
Transneft is Russian state-owned business responsible for the national oil pipelines. It owns the largest oil pipeline system in the world, with a total network length of almost 50,000 kilometers. Transneft transports about 93 percent of the oil produced in Russia.

The Finance Ministry has not yet responded to Tokarev’s summons. However, the market has reacted violently – from March 24, Transneft’s “preferred shares” went up 44.5 percent on the MICEX Index (to 37.450 rubles), and the stock price returned to its pre-crisis level.

Offers on Transneft privatization sounded repeatedly, including from oil industry workers who had no objection to divide 49 percent of monopoly to proportionally volume of prorolling among themselves. But the state has approached the move cautiously. In 2001 Victor Khristenko, then vice-premier, had said that he did not see the bases even for partial privatization of Transneft.

In the autumn of 2009 the first vice-premier Igor Shuvalov declared that Russia can renew sale of state actives as it had faced a budgeted deficit for the first time in 10 years. Shuvalov has suggested asking investors what they wish to buy from the state. The post card to investors is ready but yet to be published.

Experts however are unsure about Transneft’s IPO. Bank of Moscow analyst Denis Borisov considers the company can offer the IPO as long as estimations of its pure debt do not exceed two EBITDA.

Prosperity Capital Management is the one of the largest Russia-focused portfolio investor with around US$4.2 billions of assets under management.

Stockholm based East Capital International specializes in the financial markets of the Eastern Europe with more that 3.3 billion euro asset under management. According to company data it has shares in several commercial banks in Russian regions and Moscow including Loko-bank — 11.06 percent, bank “Kedr” (Krasnoyarsk) — 18.75 percent, Probusinessbank (Moscow) — 10.13 percent, Asian-Pacific bank (Blagoveshchensk) — 19.99 percent, Kolyma-bank (Magadan) — 20.00 percent, Akibanke (Naberezhnye Chelny) — 19.99 percent.

Also Swedish Vostok Nafta Investment LTD mainly invests in oil and gas, coal, mining and metals industries in Russia and the other CIS states as well as operates in Russia, Switzerland and Bermuda. The net asset value of the company was US$ 487.62 million on December 31, 2009, corresponding to US$4.83 per share.