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. Last Updated: 07/27/2016

State to Sell LUKoil Shares on NYSE

The State Property Fund said this week that its biggest project for 2001 will be to sell 6 percent of No. 1 oil major LUKoil through American Depositary Receipts — the first year in nearly a decade that a controlling stake in a major state enterprise won’t be auctioned off.

State Property Fund officials said Tuesday they hope to raise $800 million through the sale.

The government, which has a stake of about 15 percent in LUKoil, had planned to sell the shares on the U.S. stock market this year, but the project was postponed. Publicly, both state and oil company officials have balked at revealing details of the project, saying that releasing information in advance of the sale would violate U.S. trading laws and damage the transaction.

On Tuesday, however, the head of the State Property Fund, Vladimir Malin, announced that about 50 million LUKoil shares would be floated on the New York Stock Exchange — a little over 6 percent of the company. He even named the proposed price of the shares — $16 each.

"So far the government is not thinking about selling major stakes in Slavneft and Rosneft because we consider the flotation of LUKoil shares to be the major transaction of 2001," said a highly placed fund official, who asked that his name be withheld.

The official said that under current Russian law, international flotations of state-owned companies are not allowed. To skirt the law, therefore, the fund will not sell the shares directly, but through a specially created structure — the Project Privatization Company, or KPP, the official said. The fund will be the founder of the company and transfer the 50 million LUKoil shares to it as principal funds. KKP will then deposit these shares with the Bank of New York, on the back of which third-level ADRs will be issued, said the official.

Property Fund officials hope the 6 percent stake will earn the state $800 million.

The ADRs will be placed on the NYSE by investment banks Morgan Stanley and CSFB. Revenue from the sale of the ADRs will then be transferred to KPP, which will then transfer it to the Russian budget.

LUKoil plans to issue its 1998, 1999 and first-half 2000 financials to generally accepted accounting principles within the next two months, which are necessary to get a listing on the NYSE.

To launch the scheme, the official said, the State Property Fund needs three documents: a presidential decree, a government resolution and official government approval of the company’s charter. The official suggested that these three documents could be ready before the end of the year, after which three to four months would be needed to prepare the flotation itself.

The project has already been given the go-ahead by all interested ministries with the exception of one — the Finance Ministry, which is unhappy with the project’s estimated cost of up to 10 percent of the flotation itself, the official said.

"The [Finance] Ministry’s objection was not that the [cost of the project] shouldn’t be paid, but rather to ask who was going to pay for it," Deputy Finance Minister Bella Zlatkis said Tuesday.

Although the fund’s target of $16 per share might seem high compared with the current price of $10.75, LUKoil shares could easily reach that level by the time of the flotation, said Alfa Bank oil analyst Konstantin Reznikov.

Reznikov said that if the oil market drops, the government will simply postpone the deal until it recovers.