Exclusive: Rosneft state owner may help Rosneft with funds for buyback - sources

November 8, 2016 12:21 PM EST

The shadow of a worker is seen next to a logo of Russia's Rosneft oil company at the central processing facility of the Rosneft-owned Priobskoye oil field outside the West Siberian city of Nefteyugansk, Russia, August 4, 2016. REUTERS/Sergei Karpukhin


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By Katya Golubkova, Oksana Kobzeva and Olesya Astakhova

MOSCOW (Reuters) - Rosneftegaz [ROSNG.UL], the state holding company that controls Russian oil major Rosneft, is considering helping Rosneft finance the buyback of some of its shares in Rosneft, three sources with knowledge of the discussions said.

The Russian state is preparing to sell a 19.5 percent stake in Rosneft, the biggest Russian oil producer and one of the largest in the world, as part of a privatization scheme intended to plug holes in the budget this year.

Under the current plan outlined by government officials, Rosneft is expected to buy back the 19.5 percent stake from Rosneftegaz, which altogether owns 69.5 percent of Rosneft, with a view to reselling the shares to investors in the first quarter of next year.

The three sources, who are not directly involved in preparing the deal, said they understood that one of the options under consideration was that Rosneftegaz would provide all or some of the funds needed by Rosneft to pay for the buyback.

The state is seeking to raise about 700 billion rubles ($11 billion) from the sale of the 19.5 percent stake.

Under the scheme outlined by the sources, who are in the banking and energy sectors and spoke on condition of anonymity, Rosneft would then pay the money back to Rosneftegaz in exchange for the stake, and in turn Rosneftegaz would transfer about 700 billion rubles to the state in the form of a special dividend payment.

In that way, one of the sources said, the state budget would benefit from the privatization.

Two further sources, one in the banking sector and another close to the government, said Rosneftegaz does not have the full 700 billion rubles available, so it might possibly finance only a portion of the buyback.

Rosneft's spokesman Mikhail Leontyev denied that there was such a plan. "This is delirium. For those who are unwell, we can explain: Rosneftegaz is a seller, not a buyer," he said.

According to a research note released by Raiffeisenbank on Tuesday, Rosneftegaz held the equivalent of 472 billion rubles in cash at the end of 2015, split between rubles and foreign currency, from dividends paid by state-controlled firms in which it has stakes, including Gazprom and InterRAO.

Rosneft Chief Executive Igor Sechin is also chairman of the board at Rosneftegaz. Interfax news agency reported on Monday that Sechin is expected to be re-elected for the post again.

OPTIONS

Russian officials have said Rosneft has the funds to buy the 19.5 percent stake. This week, Rosneft agreed to sell a 20 percent stake in its Verkhnechonskneftegaz unit for $1.1 billion to China's Beijing Gas, due to regulatory approvals.

The Russian currency market is usually highly sensitive to conversions of large amounts of foreign currencies into rubles. A fourth financial source familiar with privatizations said the state budget would receive only rubles from Rosneftegaz after the deal.

Ksenia Yudayeva, a first deputy central bank governor, told reporters on Tuesday there were different options for Rosneft buying back its own shares.

She declined to elaborate but added, "It is unlikely it (the deal) will have very significant consequences, it won't have any too strong consequences (for the forex market)".

Rosneft said in a written comment that it operates in the domestic currency market "strictly in accordance" with current legislation. "So if the regulator (the central bank) sees no risks, then there are no such (risks)."

Being Russia's top oil exporter and generating some of its revenues in hard currency, Rosneft needs to convert some of its export proceeds into rubles to meet its domestic financial needs and liabilities.

(Additional reporting by Darya Korsunskaya, Vladimir Soldatkin, Denis Pinchuk and Olga Popova; editing by Christian Lowe, Andrey Ostroukh and Mark Heinrich)



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