$2 BLN FOR RUSSNEFT

TRANSACTION. MIKHAIL GUTSERIEV’S OIL COMPANY PLANS IPO AT MOSCOW EXCHANGE
According to RBC information, RussNeft oil company, owned by Mikhail Gutseriev and his family, intends the IPO with the listing of 25 to 49% of shares by the end of the year at Moscow Exchange.

PLANNING THE TRANSACTION
Mikail Shishkhanov, B&NBANK President and RussNeft co-owner, told RBC that RussNeft goes for the IPO at Moscow Exchange. The transaction can be performed in Q4, 2016. Investors will be offered 25 to 49% of the company’s new shares depending upon demand, he announced. It is intended to allocate both shares of preferred stock and common stock, RussNeft registered the issue in March 2016. The correlation between the two types of shares remains unknown so far.
At the moment 54% of RussNeft shares belong to the companies of Mikhail Gutseriev and his family (Mr. Shishkhanov is Mr. Gutseriev’s nephew), 46% are owned by the Swiss trader  Glencore. Both owners do not intend to sell their shares, Shishkhanov says. The correlation between the shareholders’ interests, following the IPO, depends upon the transaction factors which are studied now. Shishkhanov says: “No doubt Gutseriev and his family will stay the major shareholders and Glencore will remain the company’s co-owner”.
The IPO in London is considered as the alternative to the abovementioned, but according to Shishkhanov, the Moscow Exchange listing remains the most reasonable option due to the shortage of interesting companies at the Russian stock market. Glencore representatives did not respond to RBC.
B&NBANK will act as the IPO coordinating lead manager, the advisers have been already elected and they will include the state banks and probably one foreign bank, Shishkhanov said, not disclosing the details. VTB Capital and Sberbank CIB representatives, the two major state investment banks, refused to provide any comments.

EVALUATION AND DEBTS
“We expect fair evaluation which takes into account a good position of the company at the market and its recovery”, Shishkhanov says. The oil prices have been at their lowest already. Brent was priced at $27 in January 2016, but it was traded at $49,8 per bbl on the 3d of June.
Shishkhanov did not comment on the expected RussNeft evaluation for the IPO but mentioned that the company has a CIS investor who wishes to invest $1 bln during the IPO. However neither Mikail Shishkhanov nor RussNeft representative named the investor.
He intends that should the listing be successful, RussNeft will be able to redeem the bonds in the amount of 100 bln Rub ($1,5 bln), listed before. The source from one of the major investment banks, negotiating the transaction, says the company would like to attract $2 bln in course of the listing. Taking into consideration that it will be necessary to sell 49% of shares, RussNeft will be evaluated at $4 bln for this transaction.
RussNeft debts make up around $2.3 bln with $1.3 bln being a debt to VTB, and the rest of the funds are owed to the related parties affiliated with Gutseriev, Shishkhanov reports. The company reduced its debt by $3 bln in late 2015. Before November 2015 Mr. Gutseriev’s companies and Glencore converted RussNeft corporate debt into its shares, the company’s representative says. Moody’s April review revealed until late 2016 RussNeft plans to reduce the debt to $1,3 bln (text is at RBK’s provision).
According to 2014 results the net debt of RussNeft increased the annual EBITDA sixfold, in 2015 this proportion had to reduce to 5.7, the last year bonds prospectus of Belyrian Holdings, a SPV-Company (the major shareholder of RussNeft). At the moment the company’s debt increases the EBITDA threefold, the source close to the company reports.
Considering the debt, the possible RussNeft $4 bln evaluation looks ambitious, Karen Dashyan, Advance Capital managing director says. Artem Konchin, the analyst from Otkritie Capital calls it aggressive. Both of them remark that the evaluation correctness will depend upon the final package offered to the investor as well as on the other factors including the conditions of RussNeft merging with the other assets of Mr. Gutseriev. According to Shishkhanov, before the IPO the oil fields in Azerbaijan owned by Gutseriev’s Global Energy (the businessman founded this company in 2007 when he had to leave Russia for London) will be transferred to RussNeft balance. GE Kazakhstan assets are also thought to be transferred to RussNeft.
In case of merging with the assets, RussNeft production output amounting to 7.4 mln tons of oil, will increase up to 9.3 mln tons and the recoverable resources will increase from 550 mln up to 595 mln tons. Last year the company’s production output decreased by 15%, Moody’s reports.
According to Shishkhanov, in a year, following the listing RussNeft could merge with the other oil assets of Mikhail Gutseriev. He means Neftisa with its production output at 6.9 mln tons and Orsk and Krasnodar oil refineries (together they process around 9 mln tons per year).
The total reserves volume of RussNeft and Neftisa and other oil assets amounts to 945 mln tons, the cumulative production in 2015 made up 16.8 mln tons, the businessman’s representative says. In his interview to RBC in July 2015 Gutseriev said that he plans to increase production up to 20 mln tons. 

COMPETING WITH BASHNEFT
CDU TEK 2015 data show that in terms production output RussNeft is included into Russian top 10 oil companies. In partnership with Glencore, Gutseriev has been collecting diversified oil assets since 2002, after he left the position of the head of Slavneft, the state company. RussNeft was included in Top 10 producing companies in 2004 and 3 years later Gutseriev decided to make it public. In 2007 the businessman had to leave Russia, as he was charged of tax lien and illegal business operation, the Federal Tax Service filed a claim to the court requesting obtain 70% of RussNeft shares in favor of the state. Gutseriev made a remark in a corporate newspaper about the unprecedented manhunt and that its target was to make him leave the oil business easy way. He did not manage to reveal those who ordered this investigation.
Before he left he sold the company to Oleg Deripaska. He could return to Russia only after all the criminal charges were dropped in 2010. In 2013 Gutseriev got back 100% of RussNeft although with huge debts reaching $7 bln.
The major IPO target was further debt reduction and the wish no make the company transparent for investors, Shishkhanov says. RussNeft owners are not bothered by the fact that this year will also witnesses of Bashneft 50.08% privatization. Shishkhanov explains that the companies have different potential investors. Bashneft will be probably owned by the strategist taking part in management process (the major candidate for the Company’s purchase is LUKOIL). As for RussNeft listing, the purchasers will be mainly institutional and financial investors, the businessman hopes. The key issue is whether the company can get the necessary liquidity among the Russian investors, Karen Dashyan from Advance Capital underscores.

OIL FOR THE THREE
In his interview to RBK dated July 2015 Mikhail Gutseriev said: “At the moment me and my relatives Sait-Salam Gutseriev and Mikail Shishkhanov are the shareholders in all the oil, coal and other industrial assets in Russia and abroad as well as in the developer’s business, real estate, hotels, including all the banks and financial companies of B&N group”. Gutseriev owns 70% in the oil assets (RussNeft and other assets), his brother Sait-Salam and his nephew Mikail Shishkhanov have 15% accordingly, RussNeft representative says. Thus the effective share of Mikhail Gutseriev will make up around 37.8%, Sait-Salam and Shishkhanov have 8.1% accordingly.  
06.06.2016, Timofey Dzyadko, Tatyana Aleshkina