Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Bank's Shadowy Sell-Off Deal Draws Fire

Bank Menatep's cozy position in Russia's privatization process was lambasted by industry experts and rival banks Wednesday after news that the bank traded its own shares for a stake in state oil companies.


Menatep in December received from the State Property Committee shares in five oil companies and a paper mill, valued by the state at $2.5 million, for an undisclosed amount of its own shares, press reports this week said. Former privatization chief Sergei Belyayev, now heading the pro-government Our Home Is Russia faction in the State Duma, said he had authorized the deal.


Experts said the value of the shares Menatep acquired was far higher, and called the swap another odd link in the chain of Menatep's acquisitions in last year's controversial loans-for-shares programs.


"The only conclusion that comes to mind is that there is some 'special' kind of relations between the state and Menatep," said Vladimir Vendin, financial director of Alfa-Kapital investment group.


Parent Alfa-Bank was one of the banks that cried foul last year after a Menatep-backed group walked away with 78 percent of the shares in the Yukos oil company, with a total bid just slightly over the starting price of $350 million. The State Property Committee turned down a higher bid from a group backed by Alfa-Bank, Rossiisky Kredit and Inkombank on technical grounds.


Menatep officials Wednesday refused to comment on the latest reported swap with the government.


The shares in question were a 3.88 percent stake in oil giant Sidanko, 9 percent of the Tyumen Oil Company, 4 percent of the Komitek oil group, 0.23 percent of Onako oil firm, 0.46 percent of Eastern Oil Company, and a 1.13 percent chunk of Ust-Ilimsk cellulose paper mill, according to press reports.


"Looks pretty wild," said Andrei Kushnarev, deputy director general of the Center for Foreign Investment and Privatization, a consulting agency, referring to the Menatep acquisitions. "Four to five percent [of Sidanko shares] is worth a lot of money."


The U.S.-based Arco oil company paid $250 million for a 6 percent stake in the Russian LUKoil petroleum giant. Sidanko's production is a little under half that of LUKoil and its management is not considered as strong, but analysts say it has strong growth potential.


"These shares were definitely underpriced, even if we assess their value from the current market standings," which are lower than in December, Vendin said.


"The origin of these shares is strange," Vendin added. "It's not clear if they remained as part of unsold lots [of the loans-for-shares] auctions, or if it's a new issue." If the shares happened to be unsold lots of the previous public auctions, "this would mean a direct support for Menatep by the state," he said.


One Western oil industry official, who asked not to be named, called the whole affair "madness."


Mikhail Sedov, deputy head of privatization of Russia's oil enterprises at the State Property Committee, said Wednesday he did not know any details of the deal.


Vendin said the state's acquisition of a stake in Menatep was unorthodox even by Russian standards.


"Private banks would be reluctant to enter into that kind of deal, because they don't want to see the state as one of their shareholders," he said.


Since Menatep is a joint-stock bank, the mechanism for issuing additional shares for the swap with the state is not entirely clear, Vendin said.


"It's not known whether there was a shareholders' meeting, which is the only body to make a decision to increase the authorized capital and issue extra shares," he added.