Wednesday, July 19, 2006

Rosneft To Begin Trading
But Seriously, Should People Even Buy?

Rosneft shares will begin trading on the London Stock Exchange as planned after the High Court threw out an attempt by rival oil group Yukos to block the initial public offering.The Russian oil company was given the go-ahead to float despite allegations from Yukos, which brought a case seeking to derail the listing, that the flotation would amount to the "laundering" of illegally-acquired assets. The court also refused a plea by Yukos for permission to seek judicial review of decisions by the Financial Services Authority (FSA) and the London Stock Exchange (LSE) to admit Rosneft shares for trading in London.

Yukos will now consider whether to take its case to the Court of Appeal but this will not happen in time to block the start of trading today. A spokeswoman for Yukos said the case had been decided on a "technical point of law" and did not deal with the company’s central complaint that its assets had been stolen by the Russian Government and passed on to Rosneft. The judge said the FSA had assured him that potential investors in Rosneft would be informed of possible problems with the listing. But he said investors would have to make up their own minds, adding "it is their risk in a commercial world."

During a two day hearing Yukos claimed that the flotation would amount to money laundering under the Proceeds of Crime Act because 70 per cent of the value of Rosneft’s shares resulted from the allegedly unlawful seizure and sale of Yukos’s assets by the Russian Government. Yukos contested legal advice given to the FSA and LSE that Yukos’s objections were "non-justiciable" - not open to legal challenge - in the English courts, because the courts had no power to interfere in the actions of a foreign state. Rosneft raised US$10.4 billion through joint listings in London and Moscow in an IPO that will value the company at around US$80 billion.

On a price-to-earnings basis Rosneft, whose large strategic investors include BP, Malaysia's Petronas and China's CNPC, has been branded as vastly overpriced by analysts. It is valued at around twice the level of Lukoil, Russia's premier energy company, which has a longer trading record, a better balance between refining and production and better governance. Against those factors stands the backing of President Putin, who has indicated he will back Rosneft to become a global power of the stature of Exxon Mobil, the world’s largest oil group. I am sure you all are aware that I haven't been the kindest commentator on Singapore's aggressive Temasek's investing strategies - but gotta give credit when it is due - Temasek (wisely) spurned the chance to acquire a large stake in Rosneft after deciding the shares were overvalued. That is the official statement from Temasek - I mean you'd think they call a spade a spade here??!! Temasek probably concluded that possible interference by the Russian government (before and in the future) puts a dampner on the shares. Unlike Petronas (i.e. Malaysia), Temasek (i.e. Singapore) has very little to do with oil & gas exploration or other business alliances. Meanwhile, CNPC from China has gobbled a large stake in Rosneft, but surprisingly China's Sinopec has stayed on the sidelines - for those who are not aware - Sinopec is barred by Beijing from going into a bidding war with another Chinese company when it comes to overseas assets. well, not Sinopec specifically, but rather that for every foreign asset on the market, only one major Chinese company should go into it, and Sinopec got the short straw this time I guess.

Still, the question remains as to whether these kind of assets should be bought by investors. By buying them, we are basically supporting the way the bulk of assets were acquired from Khodorvsky. Money is money, it won't matter to most until you happened to be the actual party suffering holding the short end of the stick. What's even more ridiculous is that certain minority shareholders in Yukos before, basically had their assets stolen... and now have to consider buying them back from Rosneft??!! How do you end up paying twice for the same assets.... how sure can you be that you won't end up paying again the third time?? (if somebody, who happens to be a friend of Khodorvsky, succeeds in throwing out Putin, and again grabs Rosneft assets for tax and other legal misdoings ... putting them back to Yukos... that would be really fun to watch!!).

Even for government to government bodies such as Petronas, who has to show support for future business alliances, pragmatism rules the day again. Then again, if I am elected to run Petronas, I might very well do the same thing. Sometimes pragmatism, hope, ethics, integrity all get mixed up in a whoopass of grey amidst the black and white of the said matter.

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