Russia claims LUKoil sale a great success

  • 2002-12-12
  • Dmitry Zaks

Russia hailed as a great success its sudden Dec. 5 sale of a stake in LUKoil for nearly 775 million euros in a London Stock Exchange auction at which analysts said Moscow learned from past errors of poor market play.

"The deal is done, and I would like to grade it as very successful," Prime Minister Mikhail Kasyanov told a Cabinet meeting of this week's auction of a 5.9 percent hold in Russia's number one oil producer. "The market judges it as such as well," he added.

Taking advantage of a modest recovery in global markets, the Russian government sold the stake. The proceeds fell just short of an $800 million target Moscow had set over the summer, when in early August authorities abruptly cancelled a planned sale after realizing that it would not earn the cash it was counting on because of a serious drop in global markets.

Those markets have since rallied and the Russian government decided to stage the sale this year, but without first briefing most investors about the flotation.

Moscow appeared to learn from earlier mistakes. Business analysts said Russia had been forced to call off the original sale because it was outfoxed by bankers.

Investors, having been informed of the starting price and date of the upcoming August auction by LUKoil executives, played the market to lower the company's share price, market analysts in Moscow said.

They suggested the stock was dumped in August to Western hedge-funds, but refused to provide further details.

Meanwhile the Russian stock market dropped sharply Dec.4 as investors sold stock to buy into LUKoil, traders said.

"The cause was proximate and short-term, as investors sold oil stocks to finance the purchase of LUKoil," the United Financial Group said in a research note.

Moscow Renaissance Capital investment house, hinting it was a touch stunned by the placement by calling it "slightly hurried," also judged the sale as "reasonably successful."

There has been no indication so far of whether local or Western players on the Russian market were involved in the LUKoil buy-in.

The sale of LUKoil comes just two weeks before the Russian government puts up its last prized oil possession on the market - a 75 percent stake in the number seven company Slavneft, seen as one of the last big privatizations in the post Soviet era.

The Slavneft sale, long mired in controversy, gained a new dimension this week with the sudden announcement from Beijing that China National Petroleum Corporation was also planning to bid on the stake.

CNPC would be the first outsider to make any major inroads into the cut-throat but profitable Russian oil market, and the Chinese company's announcement - likely to see Slavneft's price soar high above the $1.7 billion starting price - received a muted response from the Russian government.

Russia needs the money to meet a peak in foreign debt repayments in 2003 which will total some $17 billion - nearly a quarter of Russia's $70 billion state budget for next year.