FROM THE WALL STREET JOURNAL
Pricing Set for Friday
With Valuation Talk
Of About $70 Billion
By GREGORY L. WHITE in Moscow and ALISTAIR MACDONALD in London
July 12, 2006
Russian state oil company OAO Rosneft is closing the order book a day ahead of schedule today on its landmark initial public offering, beginning the sensitive process of balancing strong demand from international oil companies against the desire to include Western fund managers, who have been cooler to the deal.
The Kremlin’s tightening grip on the energy sector has fueled demand for Rosneft shares among international oil companies looking to win points with the Russian government. These buyers have indicated interest in buying about $5 billion of the offering, whose overall size could total as much as $11.6 billion, according to people close to the deal.
China National Petroleum Corp., eager to line up Russian crude-oil supplies for China’s fast-growing economy, could invest as much as $3 billion, according to people close to the deal. BP PLC, with some of the biggest Russian investments of any Western oil company, has indicated it could buy around $1 billion, while Malaysia’s Petroliam Nasional Bhd. has signaled interest in about $1 billion, these people said. Royal Dutch Shell PLC also is considering investing, although at the low end of the price range, meaning it might not participate, these people said.
Despite the strong demand from so-called strategic buyers, Rosneft and its advisers are eager to ensure that foreign and Russian investment funds also get a substantial chunk of the offering in order to ensure a liquid market in the shares once trading starts next week.
In a sign of the skeptical reception among some fund managers, Rosneft cut short meetings with prospective investors in the U.S. this week to focus on those in Europe, where interest was greater, people close to the deal said.
Coming just days before Russia hosts its first meeting of the Group of Eight leading nations this weekend, the Rosneft IPO, which could be one of the world’s largest, is as much a political event as it is a business deal.
A successful placement would give the Kremlin much-needed international ratification of its widely criticized retaking of the Russian oil sector. Rosneft has been a flagship of that process, having taken over the main asset of OAO Yukos, the privately owned company that had been Russia’s largest oil producer until the Kremlin jailed its politically ambitious chief executive in 2003 and later crippled the company with billions in back-tax claims.
Yukos has threatened Rosneft with years of lawsuits. But U.K. financial regulators told Yukos yesterday that they will let Rosneft’s listing go ahead despite Yukos’s appeal to block it because of the legal claims, Yukos said.
In addition to concerns among investors who lost billions of dollars on Yukos, many fund managers have said Rosneft’s offering is pricey, particularly after the selloff in recent months in emerging markets. The price range values the company at between $60 billion and $80 billion, compared with about $73 billion for OAO Lukoil, Russia’s No. 1 oil producer.
To ensure enough portfolio managers get shares, Rosneft and its advisers are considering keeping the price around the middle of the range, valuing the company at about $70 billion, people close to the deal said.
The price is scheduled to be announced Friday, but the company is considering narrowing the price range today to give investors a clearer indication of where the ultimate figure will be.
Russian investors, including tycoons like Roman Abramovich, also have shown demand for as much as $1 billion, as have retail buyers who can sign up for shares at banks across Russia. Some foreign investors said they expect Rosneft to ensure its shares rise in the market in the coming months so as not to disappoint these buyers.