Sistema hands oil over

Sistema signed sale agreements for 49% interest in RussNeft for $1.2 billion, the company said. 25% interest will be bought by Mikhail Shishkhanov, owner of Binbank and nephew of Mikhail Gutseriev, founder of the oil company; 24% interest will be bought by Felix Dlin, a St-Petersburg businessman. He heads the Board of Neftemaslozavod in Orenburg which was under control by RussNeft before 2011. Both buyers are proxies of Gutseriev, as specified by a source close to him.

Completion of the deal is scheduled for Q3, according to Sistema. This will allow Gutseriev to return control over the oil company founded by him in early 2000s. He has lost the controlling interest twice since then: in 2007, when the tax authorities claimed RussNeft shares in favour of the state and a law suit was initiated against the businessman who had to leave Russia and sell 100% of the company to Oleg Deripaska; and in 2010, when the criminal law suit was closed, Gutseriev came back and bought back RussNeft, but he sold 49% interest to Sistema and other 2% were sold to Sberbank, the major creditor of the company.

Sistema bought 49% of RussNeft for only $100 million but the debt of the company at that time was around $7 billion and it reduced down to $4.8 billion by beginning of 2013. In 2012, the company’s net profit was RUB 8.2 billion as per the Russian Accounting System against RUB 3.8 million loss the previous year and the company paid RUB 2.67 billion of dividends for the first time in many years. However, Sistema had no intention to sell its interest so fast and considered a merger of RussNeft with Bashneft. “We always said that an asset merger is only possible in case of significant reduction of the debt load over RussNeft, but it is not feasible with the current level of debt”, representative of Sistema said.

The partners agreed as early as in 2010 that in three years one of them would be allowed to buy out the interest of the other. The price would be set on the Russian roulette principal, according to two sources close to the company’s shareholders. This is what has happened, one of them said. But he never specified who launched the roulette.

Along with that, AFK got a three month option to buy interest in eight producing assets of RussNeft in Ural, according to Sistem. The reference is to the assets of Belkamneft, 38% of which belong to Bashneft already, as Mikhail Shamolin, President of Sistem, explained at a teleconference. They account for about 30% of the production and 12% of the reserves of RussNeft.

AFK may buy those assets for the same amount that it sells 49% of RussNeft, Gutseriev said to Interfax, i.e. for $1.2 billion: “A minor extra payment may be needed either from their part or from our part”. Shamolin did not comment the amount of the option. He stressed that the option was executed in the interest of Bashneft which will decide on the deal after due diligence. Moreover, after completion of its RussNeft interest sale, AFK will consider payment of special dividends or it will share that income with the shareholders within the dividends for 2013, Shamolin promised.

The Ural assets of RussNeft could increase Bashneft’s production output by 25%. Acquisition will be interesting if the discounted cash flow of those projects is positive, Alexandr Shadrin, representative of Bashneft, said.

Bashneft has enough money (over 30 billion rubles in its accounts as of the end of Q1), therefore it can afford the deal, according to Alexandr Kirevnin, VTB kapital analyst. Depletion of the Ural assets of RussNeft is over 80%, and mineral extraction tax relief is applied. But all depends on their condition, the expert mentions.