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. Last Updated: 07/27/2016

Shareholders Back Surgut Share Plan




Apparently deflating several minority shareholders' opposition to its plans, Surgutneftegaz oil company won overwhelming 98 percent approval for a share consolidation plan calling for a 12 billion share float, the company announced Friday.


The company can now issue the 12 billion new common shares in AO Surgutneftegaz, which it plans to swap for management firm Surgutneftegaz NK. If completed, restructuring will leave only shares of the daughter company, AO Surgutneftegaz, on the market.


The consolidation plan was approved by 98 percent of those who voted at Thursday's extraordinary shareholders meeting, although it was unclear Friday what percentage of shareholders took part in the vote.


The company's shares barely budged on the news, drifting down less than 1 percent. Surgutneftegaz ordinary shares dropped 0.9 percent to close at 28.07 cents, on $816,000 worth of trades, while the firm's preferred shares edged down 0.4 percent to 9.63 cents on volume of $525,000.


Surgutneftegaz management holds approximately 67 percent of the company's shares.


With a minimum 75 percent needed for a binding approval, management's announcement that the consolidation move had won the day seems to indicate that Surgutneftegaz was supported by independent shareholders possessing at least 8 percent of the company between them.


Ever since Surgutneftegaz, Russia's third largest oil company by output, announced its consolidation plans a month ago, the vague scheme has excited controversy. Several minority shareholders criticized the proposals and asked for Thursday's vote to be postponed, sending the firm's shares sliding.


Citing the lack of details, a group of foreign investors said they feared their stakes would be diluted and management would gain 75 percent control of the company - shutting out minority investors from the decision-making process.


Additionally, investors objected to the fact that the holders of about 8 billion preferred Surgutneftegaz shares were not allowed to vote, even though the investors have said that preferred shareholders' interests could also be hurt by the deal.


Despite vehement protests leading up to this week's vote, the group of protesting investors met Friday's news calmly.


"I don't see anything terribly bad happening, just yet," said Dmitry Vasilyev, the former head of the Federal Securities Commission and the chief representative for the minority investors group that had opposed the consolidation plan.


Investors are still waiting for the swap ratios to be announced, said Vasilyev, who now chairs the Coordinating Center for the Defense of Investors' Rights and Legal Interests. Should the ratios turn out to be unfair, investors could step up efforts to reverse the deal.


"If the conditions are fair, then there is a road to peaceful settlement," Vasilyev said in a telephone interview Friday. "It is not our goal to get into legal actions."


However, Surgutneftegaz's campaign to get the consolidation plan approved was carried out in such a way as to provide plenty of scope for legal appeals should the need arise, he said.


From a general point of view, the move to a single share will benefit the company and its investors, he added.


William Browder, manager of the $400 million Hermitage Fund and a member of the protesting investors group, also said that the swap ratios were the main issue that Surgutneftegaz still had to reveal.


Analysts said the recent tensions between the firm and some investors were likely to be settledpeacefully.


Surgutneftegaz's frequent promises to respond to investor concerns and proposals were likely to be fairly honest, said James Henderson, an oil analyst with Renaissance Capital.


Although minor investors failed to postpone Thursday's meeting, they still succeeded in delivering their concerns to the management, Henderson said.