UPDATE 2-Russia's Putin: Mixed feelings over Rosneft-BP alliance

Thu Oct 25, 2012 11:58am EDT

* Putin backed Rosneft buyout of TNK-BP to resolve conflict

* Tycoon co-owners selling on own initiative

* Takeover would create largest listed oil group

By Gleb Bryanski

NOVO-OGARYOVO, Russia, Oct 25 (Reuters) - Russian President Vladimir Putin has "mixed feelings" about Rosneft's alliance with BP after the state oil major announced a $55 billion takeover of Anglo-Russian TNK-BP.

Putin said on Thursday that, although the deal ran counter to efforts to constrain the state's role in the Russian economy, he backed it because of a shareholder conflict between BP and the billionaire co-owners of Russia's No.3 oil firm.

Rosneft's takeover of TNK-BP, expected to close in the next six months, would create the world's largest listed oil company with daily output of 4.6 million barrels in oil-equivalent terms.

"The government and I had mixed feelings when this project came up," Putin told a meeting with foreign analysts and journalists at his residence outside Moscow. "The fact that a company with state participation was increasing its market share at the expense of its foreign partner was a minus."

In the deal, announced on Monday, Rosneft will pay $27 billion in cash and stock for BP's one-half stake in TNK-BP. BP will then plough $4.8 billion back into buying Rosneft stock to end up with a stake of nearly 20 percent.

Rosneft also reached an outline deal with the four Soviet-born tycoons that own the other half of TNK-BP - Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik - to buy out their stake for $28 billion in cash.

More than a dozen western banks have agreed to provide around $15 billion in financing to pay for the BP leg of the deal, but it remains unclear how Rosneft will finance the second part of the transaction to buy out the tycoons' AAR consortium.

A senior Western banker advising Rosneft was in Moscow on Thursday for meetings to put together deal financing, according to a source familiar with the matter.

DESIRE TO SELL

The deal represents an ambitious gambit by Rosneft CEO Igor Sechin, who has been close to Putin for two decades. But it has encountered resistance from liberal ministers in Prime Minister Dmitry Medvedev's government.

Putin, who has a history of conflict with the business "oligarchs" who amassed vast wealth in the controversial privatisations of Soviet assets in the 1990s, said the sale by the billionaire quartet was made on their own initiative.

"They expressed their desire to sell their part," he said.

There were positive aspects to the deal, he said, such as BP's presence as a minority shareholder with seats on the Rosneft board to help boost transparency. BP's stake purchase amounted to privatisation of a sort, he added.

BP paid $8 billion for a one-half stake in TNK-BP in 2003 and, factoring dividend payments of $19 billion it has received since, stands to make a total of nearly six times its original investment.

Putin cautioned at the time of the original deal that the 50-50 partnership structure might not work and repeated that line on Thursday: "They did not agree, they did not solve their issues and all their work went from one conflict to another," he said.

BP had come to the Russian government several times to ask for help to resolve the shareholder conflict.

"We tried not to get involved but when BP managers came to me and the government and said we want to cooperate with Rosneft we could not say no," said Putin.

"We had a difficult choice. In the end we have agreed with the proposal of Rosneft and BP that they will work together."

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