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. Last Updated: 07/27/2016

Rosneft Reveals Details of Yugansk Sale

State-owned oil firm Rosneft said its biggest unit, Yuganskneftegaz, was worth 76 percent more than the price at a 2004 state auction after the authorities seized Yugansk from Yukos oil firm.

Rosneft said on Monday that Yugansk was worth $7.1 billion more than the $9.3 billion that Rosneft paid in December for the unit, in 2004 earnings to U.S. generally accepted accounting standards.

The difference was recorded as "negative goodwill," in the results.

Authorities seized and sold Yugansk, which pumps about 11 percent of the country's oil, to cover part of $28 billion in tax claims filed against Yukos. The government plans to sell a minority stake in Rosneft, which became Russia's third-biggest oil producer this year after buying Yugansk.

"There were political and economic risks involved with the transaction, but all market participants understood Yugansk should be valued higher," said Andrei Gromadin, an oil and gas analyst at MDM Bank. "Yuganskneftegaz owed about $5 billion in back taxes, so the potential buyer was faced with authorities demanding this huge amount in a short time period."

Rosneft funded part of the Yugansk purchase by selling $6.1 billion of promissory notes, according to the financial results. The notes pay 2.5 percent interest per year and were secured against $6 billion that China paid Rosneft for future oil supplies.

China National Petroleum Corp. agreed to pay Rosneft $6 billion in advance for oil to be delivered over five or six years, Sergei Oganesyan, director of the Federal Energy Agency, said in February. Rosneft agreed to send China 48.4 million tons of oil by 2010, Rosneft's results said.

Rosneft's total debt increased more than fivefold to $22.7 billion last year, compared with $4.23 billion in borrowings at the end of 2003.

The rest of the money for the Yugansk purchase was raised by selling stakes in Arctic gas projects worth $1.7 billion to Gazprom and by borrowing $1.8 billion from state-controlled banks at an interest rate of 8 percent per year, Rosneft said.

Rosneft in January refinanced those credits by borrowing $6 billion to be repaid by 2011 at 3 percentage points more than the London interbank offered rate, according to the company's web site. An unidentified state-controlled Russian bank loaned Rosneft the funds as an agent for a large foreign bank, according to the Rosneft results.

Rosneft in April borrowed $465 million more to help pay off loans that were used to buy Yugansk. This loan is to be paid back at 2.75 to 3.5 percentage points more than the three-month London interbank offered rate, the company said.

Standard & Poor's lowered Rosneft's credit rating in May, citing concern the company may not be able to service its debt after the government canceled plans for Gazprom to buy the company.

Rosneft's grade was lowered to B-, six steps below investment grade, from B, the ratings company said then. Rosneft may need to refinance $5.4 billion of debt within the next 12 months, S&P said.

Moody's Investors Service in May upgraded Rosneft's issuer rating by three steps to Baa3, its lowest investment grade, from Ba3.

Baikal Finance Group, bought Yugansk, which used to produce 60 percent of Yukos' oil, in December.