MOSCOW/RYBINSK, Russia (Reuters) - Russia’s state-controlled oil giant Rosneft (ROSN.MM), in the process of buying smaller rival TNK-BP TNBP.MM, has no obligation towards minority shareholders in TNK-BP’s listed unit, Rosneft Chief Executive Igor Sechin said on Wednesday.
Rosneft is buying TNK-BP from British major BP (BP.L) and Russia’s AAR consortium in a $55 billion deal. It is paying $27 billion in cash and stock for BP’s stake and has signed a memorandum of understanding to buy out the AAR consortium for $28 billion in cash in a separate transaction.
While the TNK-BP Holding unit only has a free float of 5 percent, a bad deal for minority shareholders would be another sign that private investors have little protection in Russia.
“Rosneft has its own shareholders. I should defend my shareholders’ interests first... Their (TNK-BP Holding‘s) interests should be defended by TNK-BP management,” Sechin said, when asked about what minority shareholders could expect.
“They (the minority shareholders) just suddenly realized (that) - and cried foul. This is the market, there are risky investments. They risked their money,” he said.
Russia’s stock market trades at a discount to Western markets, partly because it has shown signs of ignoring shareholders’ interests in the past.
VTB, Russia’s No.2 lender also controlled by the state, earlier this year bought out some minority shareholders under its initial public offering’s price, but declined compensation to those holding over 500,000 roubles ($15,900) in its stock.
Sechin a week ago caused concerns among investors by saying there was no deal for minority shareholders, sending the stock to a low.
TNK-BP Holding’s shares are now trading lower at 64.1 roubles, down 2.77 percent during the day, underperforming the wider MICEX index which closed 0.28 percent higher.
Based on TNK-BP Holding’s current market capitalization, a buyout of the minority shareholders would cost the state company - already in talks with banks to raise multibillion financing - $1.6 billion.
TNK-BP Holding is owned by TNK-BP Ltd via several entities, meaning that the Rosneft transaction would not change the company’s shareholder composition, said Anton Sitnikov, partner with law firm Goltsblat BLP.
“Accordingly... Rosneft would not be obliged to make an offer to buy out the shares of TNK-BP Holding’s minority shareholders, because there is no principal condition for it,” he said.
Last week, Sechin suggested that TNK-BP Holding’s minority shareholders may convert their shares into Rosneft stocks but did not provide any additional details.
Yulia Bushueva, managing director with Abrat Capital investment fund, said a scheme under which TNK-BP shareholders switched to Rosneft’s equity “would even be a good scenario.”
“There are a lot of examples where minority shareholders just remain inside a non-liquid company,” she said. Sitnikov added that Rosneft would not be able just to swap shares as the basic option is to offer cash compensation.
Rosneft, already the top oil company in the world’s biggest producing country, will be pumping more oil and gas than Exxon Mobil (XOM.N) with TNK-BP under its wing.
Reporting by Vladimir Soldatkin and Katya Golubkova; Writing by Katya Golubkova; editing by Jason Webb and Keiron Henderson