LUKoil to Triple Dividends, Spiff Up Image

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Top oil producer LUKoil scored positive image points on a variety of fronts Friday and gained considerable ground on its self-professed drive to become more "transparent and understandable" for investors.

Despite warning of lower unconsolidated profits this year, the company said Friday it would triple dividend payments for 2000 and swap its preferred shares for ordinaries one-for-one.

The prognosis for a drop in unconsolidated profits by Russian accounting standards from 45 billion rubles ($1.56 billion) last year to 33 billion rubles this year was shrugged off by investors, who more closely watch consolidated data and expect lower profits given this year's lower oil prices.

"The [share] conversion is required because of a serious infringement of the interests of ordinary stock holders," the company said in a statement.

The plan was announced at the company's board of directors meeting Friday and will be put to a shareholders meeting scheduled for June.

Reuters quoted LUKoil vice president Leonid Fedun as saying that his company hoped to complete the swap by the end of the year.

Preferred shareholders do not have voting rights, making them vulnerable to unfriendly management decisions. Preferred shares closed 4.43 percent higher at $10.60. Ordinaries slipped 0.43 percent to $9.35.

LUKoil also mapped out plans to improve its image and relationship with investors in an attempt to boost its share price.

A blue-chip company that was once synonymous with the Russian oil industry, LUKoil has been struggling recently to keep its leadership position over main rival Yukos.

"[LUKoil's] stock price is flat this year, compared with a 14 percent rise in the RTS and a 45 percent increase in Yukos," Renaissance Capital wrote in a morning note Friday.

Yevgeny Satskov, an oil and gas analyst at Renaissance, said LUKoil is viewing its new investor relations effort as a priority because it could provide a catalyst for reversing this trend.

LUKoil's head of strategic planning, Andrei Kotchetkov, met with Renaissance Capital's analysts Thursday to outline the company's new strategy.

"We are re-engineering our corporate structure to become more understandable and transparent," Kotchetkov said in a telephone interview.

Some analysts said LUKoil's efforts to advance its share price are tied to an American Depositary Receipts debut. The government, which holds about 16 percent of the company, plans to float about 50 million shares, or roughly 6 percent of LUKoil, as ADRs on the New York Stock Exchange later this year.

"Today, the government is not ready to sell because it is looking for a higher valuation, probably closer to $16 [a share]" said Leonid Mirzoyan, an oil analyst with Deutsche Bank.

"It is achievable if the company lowers risks that bother shareholders," he said.

"The efforts will move valuations closer to the government's target price."

In addition to hiring Andrei Volpin, a new investor relations manager, LUKoil is working on several other projects that will "foster openness with shareholders," said Kotchetkov.

Firstly, LUKoil published detailed financial results for 1998-99 audited to U.S. accounting standards on its corporate web site Friday.

The company made headlines last month when it released long-awaited 1998 and 1999 numbers according to internationally accepted GAAP accounting standards. But the release failed to impress the market because it lacked specific details, such as cash-flow statements and a balance sheet.

Secondly, the company said it would publish a corporate governance charter before its annual shareholder meeting scheduled for June 28.

Additionally, LUKoil said it would kick off a roadshow in Bulgaria later this month to promote its 12 upstream and 10 downstream projects in Eastern Europe, Kotchetkov said. LUKoil subsidiary Neftochim, Bulgaria's biggest oil refinery, posted a net profit of 107.8 million levs ($49.8 million) Friday —up from a 394.6 million-levs loss for 1999, when LUKoil took over, Reuters said.

Fedun told Prime-Tass that next month LUKoil would begin supplying its recently acquired Getty chain of gas stations in the United States with gasoline from its Ukrainian and Romanian refineries.

And Lithuania said Friday that it is considering selling LUKoil a stake in its strategic Mazheikiu Nafta refinery, the largest in the Baltic states.

The oil giant is also eyeing a $300 million convertible bond issue so that "the market does not forget about us," said Kotchetkov.

LUKoil plans to use the proceeds to pay for capital expenditures in western Siberia.

A $150 million loan from the European Bank for Reconstruction and Development is expected by the company to be available by June.

"Today, you can say LUKoil is a better company than it was a couple of weeks ago," Mirzoyan said Friday.

"This is good news for the market as a whole."