Alekperov Joins Club of Billionaires

LUKoil has partly lifted the veil on the identities of its true owners, but with markets diving worldwide, this overture might not be enough to get investors to buy into the upcoming privatization of a 6 percent stake in the oil giant.

Vagit Alekperov, LUKoil's president, owns 10.38 percent of the company, a stake currently valued at $1.26 billion, according to a share sale prospectus. Nikolai Tsvetkov, CEO of affiliated company NIKoil, holds 5.26 percent, worth some $638 million. The other major shareholder is vice president Leonid Fedun, with 4.62 percent.

LUKoil first vice president Ravil Maganov, LUKoil-Reserve-Invest fund general director Igor Sherkunov, LUKoil-Garant pension fund general director Mikhail Berezhnoi and Valery Graifer, general director of oil services company Ritek, each own less than half a percent.

As recently as a month ago, Alekperov claimed that he only owned 3 percent of the company.

The prospectus was circulated among potential investors ahead of a placement on the London Stock Exchange scheduled for Wednesday. The government has been trying to sell 6 percent of the company since 2001, when it was touted as the biggest privatization of the year.

The government's plans were foiled by the delayed publication of financial accounts and a spat with a U.S. politician. The problem now lies with international financial markets, which have plunged to five-year lows over the past two weeks.

Since the company and the State Property Fund, which officially owns the stake, began their roadshow last week, government officials have been sending mixed signals as to whether the issue would go ahead.

First Deputy Property Minister Alexander Braverman attempted Friday to put speculation to rest, saying a final decision will be made Wednesday, when, he said, investor interest in the stock should be clear.

Braverman admitted the situation on world markets was not the best, but added that investors so far have been impressed with LUKoil's balance sheet and earnings.

"The decision will be made in the best interests of the government and LUKoil," Interfax reported him as saying.

LUKoil is undervalued by 36 percent to 38 percent because Russian companies carry more risk than their Western counterparts, Braverman said.

Russian companies' ownership structures -- which often include a maze of shell companies created to avoid taxes and conceal identities -- are part of this risk. LUKoil is the fourth major holding to reveal its major shareholders this year, a move applauded by analysts.

"The official disclosure on individual ownership stakes is clearly another sign of increased transparency," Aton Capital said in a research note.

Some of these moves toward transparency contained unpleasant surprises: Before its February initial public offering on the New York Stock Exchange, food giant Wimm-Bill-Dann disclosed that its largest shareholder was a convicted felon.

Others were more predictable. Group Menatep, an industrial giant before the 1998 financial crisis, announced last month that it owned 61 percent of Yukos, giving Yukos CEO Mikhail Khodorkovsky 36 percent of the oil company. As of Friday's market close, Khodorkovsky's stake was worth $6.86 billion, substantially more than Alekperov's, despite LUKoil's larger production volumes. Earlier this month, Sistema, whose top asset is Mobile TeleSystems, opened its books in an effort to attract foreign investment. In a filing to the Federal Securities Commission after completing a revamp, the company's consolidated assets were put at $1.7 billion as of Oct. 1, which would make Sistema founder and chief Vladimir Yevtushenkov's 75.96 percent stake worth about $1.5 billion.

The London Stock Exchange requires that listed companies say how much each member of the directors and management board owns, said Patrick Humphris, a spokesman with Britain's Financial Services Authority. But companies are not required to disclose other major shareholders.

According to the prospectus, Alekperov's annual salary is $1.5 million, and if LUKoil meets production and sales goals, his compensation shoots up by another $2.225 million. He also received 500,000 "phantom shares" in 2001. Although they do not exist, Alekperov is paid dividends on the stock as well as the amount they go up during a three-year period.

The stock's recent volatility has caused some concern among government officials. Some analysts, however, believe the state will not delay the placement because it has struck a behind-the-scenes deal with LUKoil in which the oil company promised to support the stock price by purchasing via companies backed by LUKoil management.

In 1999, Reforma Investment, an obscure Cypriot-based company, won an auction for 9 percent of LUKoil with a bid that was only $5,000 above the asking price of $200 million. It is widely believed that LUKoil managers or people close to them were behind Reforma. Alekperov has repeatedly denied these accusations, and Reforma remains a mystery.

A source close to the current privatization said rumors about purchases by "friendly" companies were "ridiculous," adding that there are many reasons to go ahead now rather than postponing the issue.

"There will be a lot of blame to go around if the government decides to put off the issue for another six months and then discovers the markets have gone even lower," the source said.

Government officials have said they expect $660 million to $800 million in proceeds from this month's sale.

The government will probably go ahead and sell despite difficult market conditions as long as the price stays above $13, the level originally envisioned, said Steven Dashevsky, an oil analyst with Aton Capital.

LUKoil shares crept up 0.7 percent Friday to close at $14.35 on the Russian Trading System. At this price, the state would reap about $700 million from the sale.

 LUKoil's overall debt was $3.4 billion as of the end of last year, according to the prospectus. The debt includes $1.5 billion in short-term liabilities and $1.9 billion in long-term ones, the prospectus said.

The company obtained a $200 million four-year loan from CS First Boston International in July. The loan pays interest rate of LIBOR plus 3.70 percent, Reuters reported.