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. Last Updated: 07/27/2016

Sibneft Builds Slavneft War Chest

Russia's No. 5 oil company Sibneft said Tuesday it might use the proceeds from its $500 million eurobond to bid for Slavneft, the country's largest privatization this year.

Earlier in the day the company placed a 2009 eurobond at par with a coupon of 10.75 percent.

"As this is the longest-term money that Sibneft has access to, we expect to use the bond proceeds to fund our long-range plans to boost growth through strategic acquisitions, as well as investments in upstream and downstream projects," Sibneft president Eugene Shvidler said. "Slavneft is one acquisition we are considering, but if we do not buy Slavneft, the money can be directed to other current and potential investment projects."

The Russian government is auctioning off 75 percent in Slavneft, which produces 4 percent of the country's oil, at a starting price of $1.7 billion. The winner is to be announced Dec. 18.

Belarus is tendering its 11 percent stake in Slavneft, and Sibneft is so far the only prospective buyer with a $210 million bid.

That auction, however, was suspended until 3 p.m. Thursday, Prime-Tass quoted an official with the Belarussian currency and stock exchange as saying.

That auction has been repeatedly suspended since it began Friday with no official reason provided.

A Belarussian official said last week that Sibneft had made the first bid through Slavneftebank. But the Belarussian State Fund authorities were reportedly not satisfied with the bid and the auction was postponed until Monday.

Prime-Tass reported that industry sources said that the Belarussian government has created a commission to meet with representatives of Sibneft.

It remains unclear whether new bidders would be allowed to take part or if the government is waiting for a higher price from Sibneft.

Sibneft and its rival Tyumen Oil Co., or TNK, Russia's fourth-largest oil firm, already hold a joint 12 percent stake in Slavneft.

Shvidler said that Sibneft's international borrowing plans next year would depend in part on the result of the Slavneft sale.

"In general, our strategy has been to turn to international capital markets to meet a greater proportion of our borrowing needs, and to replace short-term debt with longer-term money."

(Reuters, MT)