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. Last Updated: 07/27/2016

Sibneft Wins Out in Yuksi Deal




The terms of the merger to create oil superholding Yuksi are stacked in favor of Sibneft, which has received a bigger share of the new company than its assets merit, analysts said Tuesday.


They warned, however, that neither Sibneft nor its merger partner Yukos will gain from the deal unless Yuksi's managers can transform the massive holding into an efficient, world-class oil company.


The new holding will combine the assets of Yukos, Sibneft, Eastern Oil Co. and East Siberian Oil Co. with Yukos holding a 60 percent stake and Sibneft a 40 percent stake.


Sibneft's 40 percent appears to outweigh the oil it brings to the merger. Not including its acquisition of Eastern Oil, Yukos will contribute two-thirds of Yuksi's oil production and three-quarters of its oil reserves.


"We think that Sibneft shareholders get a better deal," brokerage firm United Financial Group-Paribas said in a report published Tuesday. "Therefore we change our recommendation for Sibneft from no action to buy."


Such optimistic assessments may evaporate if the new company fails to adequately restructure.Yuksi's new President Mikhail Khodorkovsky faces the giant task of melding its four oil production fields, five refineries and a vast distribution system into a profitable, efficient company.


Yuksi management also will struggle to consolidate the holding's various subsidiaries into one holding company balance sheet and stock within the one-year deadline it has announced, analysts said.


"They create a very big oil company, but there still seems to be this notion that size is the most important thing, instead of profitability," said Stephen O'Sullivan, director of oil and gas research at MC Securities, in London.


"One of the things they could do is restructure, reduce costs and become more transparent, but they could have done that when they were individual companies and we didn't see it."


Analysts say Yuksi has the potential to become an economic powerhouse with its 15.8 billion barrels of reserves, its enormous refining capacity and its near lock on oil and gas distribution in East Siberia, but the more immediate effect of the merger appears to be political.


Yuksi unites four of Russia's most powerful bankers -- Boris Berezovsky, Alexander Smolensky, Mikhail Khodorkovsky and Vladimir Gussinsky -- against a fifth, Vladimir Potanin, head of Uneximbank.


Berezovsky, Smolensky and Gussinsky were all smiling broadly at the merger signing Monday as Prime Minister Viktor Chernomyrdin showered the holding with praise and the government's blessing. Smolensky, head of SBS-Agro, and Gussinsky, MOST-Bank's chief, are believed to have helped finance Berezovsky's acquisition of Sibneft last year. Khodorkovsky founded Bank Menatep, which is now part of his Yukos-Rosprom financial industrial group.


"The merger already has seriously influenced the balance of power in the financial world, positively for Mr. Berezovsky but negatively for Mr. Potanin," said Alexei Zudin, director of political research at The Center for Political Technologies, a nongovernmental research consultancy. "The situation looks like Potanin against all."


Despite the potential the deal appears to offer Sibneft investors, some analysts remained cautious about investing in the companies that will make up Yuksi, citing transparency as a major concern.


A minority shareholder in Tomskneft, part of Eastern Oil Co., on Tuesday alleged Yukos had sabotaged the shareholder's attempt to bring more transparency to Tomskneft.


The minority shareholder was unable to gather a quorum to vote on a resolution it drafted calling for greater transparency because Eastern, which owns 51 percent of Tomskneft's voting shares, did not attend the meeting.


Khodorkovsky said Monday that minority shareholder rights would be respected during the Yuksi consolidation.