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. Last Updated: 07/27/2016

BP to Get Rid of Its LUKoil Stake

BP next month will call a $420 million bond that is convertible into LUKoil shares in what the oil giant hopes is its exit from an inherited investment in Russia's top crude producer, the company said Wednesday.

The British company is offering to redeem the bonds at par ($1,000) starting Feb. 10, to be completed the next day. Until then, bondholders may convert each bond into 20 LUKoil American Depositary Receipts, which were trading down slightly at about $59.30 in London on Wednesday afternoon.

BP expects bondholders to opt for the conversion.

"LUKoil was something we inherited," a BP official said by telephone from London. "The aim is that we'd actually have money to do with what we wanted to do, to get involved in projects where we could have a direct impact. It doesn't mean that we're saying we've got no interest in Russia."

If all the bonds are converted, BP will be relieved of its remaining 8.4 million LUKoil ADRs it acquired when it bought ARCO in 2000. The BP official said the company sold 5.9 million shares when the bond was placed in February 2001.

LUKoil's local shares shed more than 5 percent Wednesday to close at $14.77 on the Russian Trading System.

Analysts said, however, that at least three-fourths of bondholders appeared to have planned for the eventual call and have hedged positions, so the jitters should disappear soon.

"The net supply [on the market] will be a lot smaller than 8.4 million," said Kaha Kiknavelidze of Troika Dialog. "Technically it's negative, but it has no fundamental impact. Any further decrease in price could be a buying opportunity."

"If anything, this is good. Everyone knew that BP is not a strategic partner of LUKoil," said Christopher Weafer, chief strategist at Alfa Bank.

"It removes a stock overhang and increases the free float. Once the current uncertainty is out of the way, the share price should actually do better, because it will be a better quality situation for LUKoil."