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The Times: Rosneft buys asset cheaply after BP drops out of early bidding

March 28, 2007
Carl Mortished and Steve Hawkes

BP conceded defeat in the auction yesterday of a $7.6 billion (£3.86 billion) stake in Rosneft after only five bids, allowing the state oil company to buy in 9.4 per cent of its share capital at a 10 per cent discount to market value.

BP was the only alternative bidder to take part in the auction by the liquidator of Yukos. The bidding commenced at $7.47 billion.

The British multinational’s intention to participate in the bankruptcy sale emerged late last week as Lord Browne of Madingley, BP’s chief executive, introduced Tony Hayward, his successor, to President Putin at a meeting in the Kremlin.

A TNK-BP spokesman insisted that the company had been serious about winning but that the asking price had risen too high. The bidding rose in increments of $10 million, but BP pulled out when it reached $90 million above the starting price. The value of the shareholding on the stock market yesterday was $8.4 billion.

“We set a limit and once we reached that we chose not to proceed,” the spokesman said. “Accusations that the auction was a sham are absolute nonsense.”

He added that TNK-BP would “look carefully” at other parts of the Yukos empire being sold off by the Kremlin, as the liquidator dismembers the oil company founded by Mikhail Khodorkovsky, the jailed oligarch.

TNK-BP is unlikely to enter the auction next week of a 20 per cent stake in Gazprom-Neft, the oil company set up by Roman Abramovich and formerly known as Sibneft until its takeover by Gazprom.

BP’s Russian venture is in negotiations with Gazprom over the gas utility’s participation of Kovytka, a giant gasfield in Eastern Siberia where TNK-BP is threatened with the confiscation and sale of its licence.

The probity of the auction is challenged by GML, formerly Group Menatep, the principal shareholder of Yukos, which threatened to take legal action against BP if it acquired the shares. The Yukos shareholder believes that the company was illegally expropriated after a series of bogus tax claims. Yuganskneftegaz, its biggest oil-producing asset, was sold for $9 billion in 2005, a fraction of its estimated market value, to Baikal Finance, an unknown company with an address above a grocer’s shop. Yugansk was quickly sold on to Rosneft.

Edward Rebgun, the Yukos liquidator, estimates the value of the residual assets at $22 billion. GML claims it to be double that amount. Rosneft is also a creditor of Yukos, owed about $10 billion via its subsidiary Yuganskneftegaz.

Valeri Nesterov, an oil and gas analyst with Troika Dialog, the investment bank, said: “The expectation was, firstly, that the winner would be Rosneft, secondly that the price would not significantly exceed the starting price and that particpa-tion of TNK-BP was strategic and aimed at improving its prospects for working with Rosneft. Commentary, page 49

How company was seized

May 31, 2004

Mikhail Khodorkovsky, the former chairman of Yukos, the Russian oil company, is jailed for nine years for fraud and tax evasion

December 22

Rosneft buys 76.6 per cent stake in Yuganskneftegaz, Yukos’s core asset

April 19, 2005

Rosneft secures ruling in Moscow to impound Yukos’s remaining oil production assets

August 1, 2006

A Moscow court declares Yukos bankrupt, ending a two-year battle by its management and shareholders to keep the company solvent under the weight of tax claims totalling $28 billion (£14.2 billion)

February 5, 2007

Khodorkovsky faces new money-laundering charges

March 5

Vladimir Pereverzin, a former Yukos director, is jailed for 11 years for embezzling £6.6 billion

March 27

Start of auction for Yukos’s 9 per cent stake in Rosneft

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