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. Last Updated: 07/27/2016

Onako Tender Won by Yevrotek

With a surprise bid of $1.08 billion, a company connected to Tyumen Oil Co. beat out three other contenders to win a privatization tender for control of the Onako oil company, the Federal Property Fund announced Tuesday.

The bid by Yevrotek for the 85 percent stake was more than double the starting price of $425.25 million, a sign that the sell-off was conducted fairly, industry observers said.

The tender, the first privatization under the government of President Vladimir Putin, had been seen as a crucial test of its pledges to distance itself from the well-connected oligarchs and insider deals that played a big role in the sell-offs of the mid-1990s. Dozens of stakes in state-owned companies were sold at that time for bids barely above the starting price.

"This is the first time in Russian privatization that a company was sold for its real value," said Gennady Kra-sovsky, an oil analyst at the NIKoil brokerage.

The Onako prize will boost Tyumen Oil, or TNK, from fifth to fourth place among Russian oil companies in terms of output, oil analysts said. No. 11 Onako produced just under 8 million tons of crude last year, while TNK produced 24 million tons.

Federal Property Fund head Vladimir Malin said that the $1.08 billion bid was the biggest sum ever paid in the privatization of an oil company, even though Onako was one of the smallest oil firms to have been auctioned.

Property Minister Farit Gazizullin hailed the sell-off as a turning point, saying the size of the winning bid and the way the tender was executed signaled an improvement in the investment climate.

"At last, bidders have begun to treat a sale as a competition between financial proposals," Gazizullin was quoted by Interfax as saying.

The bid also more than fulfilled the government’s announced target in May to reap $1 billion from the privatization of stakes in oil companies Onako, Rosneft, Slavneft and LUKoil. Sales of the stakes in the latter three companies were later abandoned.

The only privatization auction to fetch more money was the sale in 1997 of a 25 percent stake in the Svyazinvest telecommunications holding for $1.875 billion. A 9 percent stake in LUKoil, the nation’s No.1 oil firm, sold for $440 million last year.

The starting bid for Onako of $425.25 million, plus a $4.5 million fee to cover tender costs, was fixed by organizer Dresdner Kleinwort Benson. Oil analysts had predicted that bidding would top out at $500 million to $600 million.

Malin of Federal Property Fund said the other participants in the tender were TNK with a $1.03 billion bid, Profit House with $1 billion and Yugraneft with $450 million. Profit House represented an alliance between oil majors Yukos and Sibneft and Gazprom subsidiary Stroitransgaz.

LUKoil, which had said earlier that it would take part in the auction, was conspicuously absent. LUKoil declined to comment Tuesday on the sale.

TNK spokesman Vladimir Bobylyov confirmed in a telephone interview that the company had played a significant role in founding Yevrotek, but he declined to give further details. TNK is part of the powerful Alfa Group holding headed by tycoons Pyotr Aven and Mikhail Fridman.

Yevrotek is based in the Ural Mountains town of Kamensk Uralsky and was established in late 1998 by the firms Uralsky and Kongurs, Malin said. The ownership structure of those two companies was unclear Tuesday.

But Malin said he had few details about Yevrotek’s operations. Yevrotek’s annual budget is about $10 million, or 10 times less than its winning bid, and — like all the bidders — it has no debts, he said.

The company intends to take out loans to pay for the Onako stake, he said.

Yevrotek must now pay the government $1.08 billion with the next 10 days. It will take control of the stake in a month, providing the sale is cleared by the Federal Security Service and the Anti-Monopoly Ministry.

Oil analysts said the billion-dollar bids placed for the stake suggested that competition had been fierce and that it had been sold for a fair price.

"The high sale price showed there had been real competition in the tender," said Ivan Mazalov, oil analyst at the Troika Dialog investment bank.

Onako produced 7.49 million tons of crude in 1999, bringing in net profits of $310 million on revenues of $840 million. This year, revenues are expected to jump to almost $1 billion and profit to $350 million, according to NIKoil.

The jewel in Onako’s crown is its production unit Orenburgneft in the Orenburg region of the Urals. Orenburgneft owns 94.5 percent of the company’s proven oil reserves of 295 million tons and exports about 40 percent of what it produces. Those lucrative exports account for 70 percent of Onako’s revenues.

With Onako’s output, TNK will fall between No. 3 Surgutneftegaz and No. 5 Tatneft.

The remaining 15 percent of Onako is owned by a group of foreign and Russian shareholders. About 4.5 percent is held by Credit Suisse First Boston and the Depositary Clearing Co. and is in free trade on the stock market, according to Aton brokerage. Cyprus-based Cougar Investments also holds 2.3 percent. Yukos is thought to own a 2 percent stake acquired from U.S. investor Kenneth Dart.

The sale of Onako comes as the oil industry continues to consolidate and the bigger players hone in on their smaller rivals. LUKoil has assumed control over Komineft, and Sidanko has been caught in a fight to protect its oil-producing subsidiaries from take over attempts.

TNK first vice president Viktor Vekselberg predicted Tuesday that such consolidation will go on until only three or four major companies are left.

"So logic dictates that you should be big," he said.