Install

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

. Last Updated: 07/27/2016

Interros Buy Secures Sidanko Control

One of Russia's largest financial groups got a bargain on Friday with the purchase of oil major Sidanko, but special terms of the government-regulated auction made any other winner unlikely, oil analysts said.


Interros-Oil, part of the Interros financial-industrial group built around Uneximbank, won an auction for 51 percent of Sidanko on Friday with a bid of $129.8 million, less than $1 million above the minimum bid.


"I would definitely buy it myself at that price," said one Western oil analyst in Moscow. "The valuation should be at least 100 percent higher." Analysts said exact valuation of the group, which owns stakes in a number of companies, was difficult.


Foreigners are not allowed to own more than 15 percent of Russian oil companies.


Sidanko is one of a dozen vertically integrated Russian oil groups created over the last few years.


It owns 51 percent stakes in operating units Chernogorneft, Kondpetroleum and Varyoganneftegaz and is in a dispute over ownership of producer Purneftegaz.


Auction terms, set by Bank MFK, which is close to Uneximbank, require Interros-Oil to invest another $161 million in Sidanko over the next year, including $100 million in the next month.


That requirement was more than many investors were likely to pay, said James Bunch, oil and gas analyst at Renaissance Capital investment bank.


"At investment tenders in Russia, investors are enticed by the low purchase price but often put off by required investment which raises the implied purchase price," Bunch said.


But another investment requirement in the tender made it nearly impossible for other companies to bid, analysts said.


Bidders were required to transfer a major stake in the Angara refinery to Sidanko, which already has a controlling stake in Angara.


The Interros group has such a stake in the Angara refinery but other companies do not, the Western analyst said, and they would have been hard pressed to buy one between the announcement of the auction and the deadline for bids.


Interros-Oil won another investment tender for a separate 34 percent stake in Sidanko last September under terms which required the transfer of shares in Chernogorneft to Sidanko.


Analysts said the moves marked a trend toward ownership consolidation of major companies already in private hands.


Russia owned the 51 percent Sidanko stake but had transferred control of it to Bank MFK for a $130 million loan in December 1995 as part of the revenue-raising program known as "shares-for-loans."


The government would have shared profits with Bank MFK if the purchase price had been more than the loan, but the bid was too low. There was only one other bid in the auction.


"The trend is that shares are sold at the same price as the loans-for-shares and are controlled by insiders," said a second Western analyst.


Bank Menatep last month sold a one-third stake in the Yukos oil company it acquired in trust last year under the loans-for-shares scheme for $160.1 million, just a shade above the price it paid last year. The previously unheard of buyer, Monblan, is widely believed to be controlled by Menatep.


Michael Boboshko, an equity analyst at investment bank Sovlink, said investors in Sidanko units would not feel any difference from Friday's move.


"The fact that this sale took place to Interros-Oil means nothing has changed since effectively Sidanko was controlled by the same group anyway," he said. Sovlink is a consultant to Chernogorneft.


But the second Western analyst said control by the Interros group, which added stability and gave the oil company a source of funds, was seen as a negative factor for other investors.


"It is unlikely these guys would spend money and get control and give a lot of value to outsiders," he said.