Wednesday, August 09, 2006

Rosneft's share price could increase, but will it carry any rights?

The Share Price

Rosneft’s current share price could be described as uninspiring, following its mammoth IPO in July. Investors, having snapped up shares at USD7.55, are now finding that their GDRs are currently priced at USD7.33 on the London Stock Exchange, despite the efforts of the underwriter.

To increase the capitalization, the government is intending to gain an inclusion into the sought-after A1 list of shares. However the rules state that no more than 75 percent of the company must be in the hands of one owner (or affiliated owners). At this moment in time, Rosneftgas holds an 85 percent stake in Rosneft.

The controlling stake must be then shuffled between different companies, with a possible 50 percent plus one share going directly to the government. This could be accomplished by dividing Rosneft into two parts and then liquidating one of them. The only problem is that the government and Rosneftgas could be considered as affiliates, which would make any transactions between them worthless. Although there are ways of contravening the regulation, that would bring more opaque systems into the equation. The stock exchange has the final word, and many analysts predict that it could give the go-ahead even if it goes against the law, however any glitch in the operation could impact the prestige of the company which is obsessed with public image before and after its IPO.

The Investors

Anecdotal evidence points to the fact that the advertising campaign targeted at pensioners has produced a result. Almost a third of private customers investing in Rosneft are over 50. Persons connected with education are second in the list, with 11.7 percent of shares to their name. People working in financial structures have invested 10.8 percent, while students hold an estimated 2.3 percent of Rosneft’s shares.

Such big number of pensioners investing is linked to high approval rating of the president and the government, something which could be attributed to state television.

Overall, big oil companies have snapped up 21% of shares with Malaysia’s Petronas leading the way with USD1.1 billion worth of securities. Russian businessman Oleg Deripaska has invested USD700 million and Chelsea’s owner Roman Abramovich - USD300 million

The Rights

People’s IPO could be here to stay, argue some analysts, with VneshTorgBank being the next big offering. Although these shares do not have the same right as those in the West, with at least some part of the population holding small stakes in state companies may mean that the government may come under pressure over its economic policy in the future. Had Yukos’ shares been in the hands of the people, the whole affair would have done much damage to the image of the state in the eyes of the population. However, it remains to be seen whether shares in state-owned businesses are not just ITM options which may or may not have weight at future AGM.

Vedomosti, Gazeta, Rusecon

Trade deficit by 2009?

Russia’s difference between import and export could turn negative by 2009, said some experts in the government today.

The following scenario is based on Urals oil barrel priced in the range of USD65-54 for the next three years.

The ruble is expected to be stable in the range of 26.7-27.1 per USD. This is positive; after all, the ruble was looking to be unstoppable in its oil-influenced ascend. Strong ruble is said to hurt exporters, making Russian goods uncompetitive in foreign markets.

The price paid for making the national currency even out could be trade deficit (import higher than export). This essentially means that consumers will pay money which comes from high oil prices for goods which are not made in Russia, thus hurting the national producers. Even now, import from nearby countries to satisfy consumer demand is rapidly rising, posting an increase of 38.7 percent this year.

The possible trade deficit scenario is surprising, considering the current trade surplus of some USD63 billion.

Many analysts have expressed their disbelief at the idea that Russia could experience trade deficit, with some citing the stabilization fund as the solution in case the prognosis does indeed happen.

It is certainly worrisome that the Ministry of Economic Development should so calmly indicate that Russian goods may be redundant in the next years with the country relying heavily upon imports in the time when oil prices may go up as well as down.

Gazeta, Rusecon