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Royal Dutch Shell Plc .com: Russian Tycoons May Play Key Role In Rosneft’s IPO

FROM THE WALL STREET JOURNAL

Strategic Investors
Would Bolster Deal;
Will Abramovich Buy?
By ALISTAIR MACDONALD in London and GREGORY L. WHITE in Moscow
Staff Reporters of THE WALL STREET JOURNAL
July 7, 2006; Page C2

The efforts by Russian oil company OAO Rosneft to enlist strategic investors in its coming initial public offering could extend to Russian tycoons such as billionaire Roman Abramovich, who is considering an investment in the hundreds of millions of dollars, according to two people familiar with the matter.

If Mr. Abramovich and other super-rich Russians decide to invest, their interest could find favor with the government of President Vladimir Putin. For Mr. Putin, the offering is a ratification of the Kremlin’s retaking of large swaths of the energy sector in recent years and an important element of prestige ahead of the Group of Eight summit of world leaders next weekend.
 
The portion of Rosneft that is to be listed in Moscow could be valued at as much as $12 billion. The shares are expected to be priced July 13. A spokesman for Millhouse, Mr. Abramovich’s investment vehicle, declined to comment.

Rosneft has turned to other strategic buyers to boost the prospects for its IPO as well. Among those considering stakes are China National Petroleum Corp. and Malaysia’s Petroliam Nasional Bhd., or Petronas. Majors BP PLC and Royal Dutch Shell PLC also have expressed interest, according to people familiar with the matter. BP and Shell declined to comment.

For these companies, maintaining good relations with the Russian state-owned company is a big motivation for participating. “The interest in the deal will primarily be from investment banks or international oil companies interested in capturing future business in Russia,” said Niall Paul, head of emerging markets at Morley Fund Management in London.

Rosneft has had a harder job trying to persuade foreign institutional investors who view it as costly. Many of them said they don’t think Rosneft should price its shares to be more expensive than fellow Russian oil major OAO Lukoil Holdings, a stock investors already know. “Why would I want it if it is more expensive than Lukoil?” said Yves Kuhn, chief investment officer at Fabien Pictet & Partners, a specialist emerging-markets fund based in London.

Still, over the past three days, some fund managers’ views have softened. This is partly because Lukoil stock has risen about 20%, making Rosneft less expensive. Moreover, emerging-markets stocks have staged something of a rally since interest-rate worries sent them sharply lower in May. “As Lukoil moves up, people are getting more constructive on the IPO,” said Kaha Kiknavelidze, oil analyst at UBS in Moscow.

Signature investments from large oil companies and the likes of Mr. Abramovich could help persuade skeptical investors further. One person familiar with the matter said salesmen at investment banks working on the deal have told fund managers that the IPO already is fully subscribed.

“Strategic buyers will give the deal support because they are likely to hold their shares longer on the hope they can use them to gain access to Russian resources in the future,” said Dirk Hoozemans, a senior portfolio manager who invests in energy stocks for Dutch mutual-fund company Robeco in Rotterdam.

Mr. Abramovich is one of the few tycoons to make their fortunes before Mr. Putin took office but still thrive under him. Last year, he sold an oil company he had won control of in Russia’s controversial privatizations in the 1990s to state gas monopoly OAO Gazprom for $13 billion. His fate has contrasted sharply with that of Mikhail Khodorkovsky, another 1990s oligarch now serving an eight-year prison term for fraud and tax evasion after seeing his OAO Yukos oil company largely nationalized to form the bulk of what is now Rosneft.

Home-grown investors such as Mr. Abramovich have become an increasingly important force in the Russian stock market, helping drive prices higher during the rally over the past two years and providing some buying support even as the market dropped sharply in May, according to analysts. Given the political momentum behind the Rosneft deal, they could be betting that the Kremlin is committed to making the Rosneft IPO a success, thus all but guaranteeing investors a return, analysts said.

–Benoit Fauçon in London contributed to this article.

Write to Alistair MacDonald at [email protected] and Gregory L. White at [email protected]

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