State prepared to sell half its stake in Mazeikiu Nafta to strategic investor

  • 2005-09-21
  • Staff and wire reports
VILNIUS - The government announced on Sept. 20 that it would sell half its interest in Mazeikiu Nafta, or 20 percent of the refinery's outstanding stock, at the same price majority owner Yukos would sell to a strategic investor.

The Cabinet has submitted a bill to Parliament that would allow the former to carry out all transactions necessary to acquire a new strategic investor for the refinery, the country's largest taxpayer.

"We hope that the parliament will deliberate the bill, which we will submit tomorrow. We hope that the decision would empower us to pursue our plan, which envisages the rational use of funds that we might receive because we are willing to sell some 20 percent stake at the same price, which Yukos would set out for the buyer of its stake," Prime Minister Algirdas Brazauskas said in an interview the same day.

The prime minister noted that the number of potential investors was large, and with profit margins increasing at the pump and crude oil prices expected to remain at current levels, if not increase further, the Lithuanian refinery is an attractive asset.

Russia's Lukoil and ConocoPhillips, a U.S. oil major, held a series of meetings last week with top Lithuanian government officials to confirm their interest in buying Yukos' majority stake in Mazeikiu Nafta, the Baltics' only oil refinery complex.

The investors said they were also interested in buying part of the government's stake in the company.

"We are interested in the possibilities (of buying shares in Mazeikiu Nafta). If we find these possibilities attractive and mutually beneficial, we will start negotiations on acquisition of the shares," Mike Fretwell, ConocoPhillips' president for international operations, told reporters on Sept. 19.

Andrei Gaidamaka, Lukoil's deputy vice-president for strategic development, said that the two investors wanted to find out what shares in the refinery the government was willing to sell.

"We are looking to become a strategic partner and we believe that this partnership would give Mazeikiu Nafta what it needs for successful operation," Gaidamaka said.

The government currently holds a 40.66 percent stake in Mazeikiu Nafta and has reached a preliminary agreement with Yukos, the troubled Russian company that is having its assets stripped for tax arrears, on coordinating efforts to find a new strategic investor for the refinery.

Russia's Fuel and Energy Ministry has prohibited Yukos' production subsidiaries from exporting to Lithuania, leaving other Russian oil majors to fill the gap. Currently Lukoil, the country's largest producer of crude, is Mazeikiu Nafta's biggest supplier.

Economy Minister Kestutis Dauksys said the two companies would likely buy an equal stake in Mazeikiu Nafta.

Meanwhile, the government has stepped up its efforts to get the ball rolling. Prime Minister Algirdas Brazauskas said on Sept. 15 that the government would borrow billions of litas in order to buy Yukos' stake. "The law on purchase and disposal of Mazeikiu Nafta's shares would entitle the government to borrow large amounts of funds on a temporary basis," he told the Ziniu Radijas radio station.

If the government succeeds in getting Yukos' stake, talks with potential investors will be launched from scratch and could be completed by the end of the year, the prime minister said.

Deputy Economy Minister Nerijus Eidukevicius earlier said the use of preemptive right, as set out in agreements with Yukos, comprised one of the alternatives under consideration.

By buying Yukos' stake, the government could then turn around and sell a controlling stake to a strategic investor. "The government is planning to buy some shares only if Yukos chose a buyer unacceptable to the government. If the buyer is acceptable, the government will not necessarily buy the shares," Dauksys said.

As the minister explained, "First, an acceptable buyer should be able to guarantee oil supplies, and second, it should be an established company that operates in compliance with international standards."

Estimates of the value of Yukos' stake in Mazeikiu Nafta vary, with some as high as 4.2 billion litas (1.2 billion euros). Yukos, however, has reportedly been asking $800 - $900 million for the stake, which would put the company value at approximately $1.5 billion.

Troika Dialog, a Moscow investment bank, said that this would give Mazeikiu Nafta a value of $18 per barrel of refining capacity, which "looks fair" in light of comparable refining margins in Eastern Europe.

Meanwhile, the refinery's market capitalization passed the 8 billion litas (2.3 billion euro) mark on Sept. 15, as investors drove up the share price on news that the government plans to buy Yukos' stake. In one day of trading, the share price soared 7.66 percent to close at 11.95 litas, bringing the company's market capitalization to 8.457 billion litas. The price reached a high of 12.20 litas during the trading session.

"For market participants, the government's plans to buy the majority stake and resell it to the Russian oil companies TNK-BP and Lukoil, which are considered acceptable buyers, mean additional safeguards that make this investment less risky," Andrius Adomkus, a broker with Jusu Tarpininkas, told the Baltic News Service.

Meanwhile, financial analysts said the government's plans to buy the stake could derail the country's plans to join the eurozone in 2007. They said the amount of money the government would need to acquire the asset would push the budget deficit beyond the Maastricht criteria limit.

ConocoPhillips currently owns about 12-13 percent of the shares in Lukoil and intends to increase its stake to 20 percent. Lukoil has purchased about 2,000 gasoline stations in the United States from ConocoPhillips.

ConocoPhillips is the third largest energy company in the United States, based on market capitalization, oil and gas proved reserves and production. It is the largest refiner in the United States and the fifth largest refiner in the world. It works with Kazakhstani, Azerbaijani and Russian oil production companies and has invested in an oil pipeline in the Caucasus.

Other companies, including TNK-BP, Gazprom and Kazakhstan's KazMunayGaz, have also expressed interest in buying Yukos' stake in the Lithuanian oil refining and transportation complex. One Lithuanian paper reported last week that the Lithuanian Cabinet has so far favored TNK-BP, another Russian-Western venture that could guarantee crude oil supplies for the Mazeikiu refinery.