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. Last Updated: 07/27/2016

Rosneft Values Itself at $100 Billion

APWorkers preparing to pump water at the Priobskoye oil field. On the building behind them, Yukos' logo is painted over.
Rosneft hopes to raise $10 billion by selling 10 percent of its stock in its upcoming initial public offering, bankers familiar with the situation said Monday.

Such a price tag -- valuing Rosneft at a staggering $100 billion -- would place a steep premium on the state oil firm and be a very tough sell, said the bankers, who spoke on condition of anonymity as their banks were among those involved in the sale.

Rosneft, the country's No. 3 oil company by 2005 output, on Monday formally announced that its shares would be for sale at Russian banks from June 26 through July 10.

Bankers have said they expect the IPO to be complete by July 14, the day before Russia hosts the Group of Eight summit in St. Petersburg, as the Kremlin seeks to present the sale as a measure of its status as an energy superpower.

Although Rosneft has yet to announce the size of the stake its wants to float or the price range, some bankers said the firm was looking to sell a 10 percent stake.

This would put an assumed market cap of $100 billion on the company -- a full $40 billion higher than the value of the country's biggest oil major, LUKoil, which was worth $60.4 billion at the close of trading Friday.

The bankers were skeptical that Rosneft would be able to sell its shares at such a premium to LUKoil.

Rosneft's IPO is designed to generate cash needed to pay off $7.5 billion in loans provided by four banks last year as part of the state's effort to regain a controlling stake in Gazprom. Rosneft also has some $11 billion of its own debt. The size of the loan means that Rosneft needs to raise at least $8 billion in the IPO, one banking source said Monday. The goal of the IPO, however, could be as high as $14 billion, Interfax reported Monday, citing a banking source.

However, the IPO is slated to take place as emerging markets are experiencing an outflow of capital. Rosneft also has yet to convince investors that it can control the legal risks it faces from Yukos shareholders after Rosneft snapped up the struggling oil company's key production unit, Yuganskneftegaz, in December 2004.

The state sold Yugansk, the jewel in the crown of Mikhail Khodorkovsky's oil empire, for just $9.4 billion in a forced auction to pay off back taxes as part of a legal onslaught by the Kremlin.

Rosneft said in a statement Monday that it would offer its shares on both domestic trading floors, the dollar-denominated RTS and the ruble-denominated MICEX. The firm also said it had applied for its Global Depositary Receipts to be listed on the London Stock Exchange.

The actual placement date is yet to be announced, but sources familiar with Rosneft's plan say it is to take place just before the July 15-17 G8 summit.

Economic Development and Trade Minister German Gref said Monday that the IPO would most likely take place after the G8 summit but before August.

"July -- yes, but we most likely do not have the time to do it before the summit," Gref said, Interfax reported Monday.

"Aug. 1 is the latest deadline. We will not be doing it after Aug. 1, but the final dates are not clear yet."

He refused to comment on the possible size of the stake to be floated.

"We intend to be done before folks go on August holidays," Rosneft vice president Peter O'Brien said in a web cast, Reuters reported Monday.

"This IPO is driven by political considerations rather than economic priorities," one banking source said Monday. "The main reason for this IPO is to have the high-profile introduction of a Russian international oil major on the eve of the G8 summit."

The source was skeptical about Rosneft's ability to raise $10 billion through the sale of a possible 10 percent stake. "Not a hope in hell in these market conditions, unless a stake is sold to a friendly company," he said.

Another banking source said Rosneft would have to increase the size of the stake to meet its $10 billion target.

"These figures sound rather ambitious," said Kakha Kiknavelidze, oil and gas analyst at UBS, one of the few Moscow investment banks that have not been hired by Rosneft to assist in the IPO.

"A lot will depend on the market situation right at the time of the IPO," Kiknavelidze said. "Also, it remains to be seen whether investors will be convinced that Rosneft can ... raise production 7 percent each year over the next few years. And finally, it is to be seen whether investors are going to be comfortable with Rosneft's capacity to monetize its claims against Yukos."

Market watchers have long believed that Rosneft will end up owning Yukos' remaining assets in Russia. Yukos' fate is due to be decided by the end of June, when court-appointed external manager Eduard Rebgun is to decide whether to have Yukos declared bankrupt.

The state's treatment of Yukos has already prompted some investors, including billionaire financier George Soros and British investment fund F&C Asset Management, to cry foul and call for investors not to get involved in the IPO.

One option that may save the day for the IPO is for Rosneft to sell an additional 5 percent stake to a friendly third party, such as Surgutneftegaz or India's largest oil producer, state-controlled Oil and Natural Gas Corporation, banking sources said.

Russian citizens, meanwhile, will be able to apply to buy Rosneft shares from June 26 to July 10.

The application forms will be available through Sberbank and a handful of investment banks, Rosneft said Monday.

Rosneft named the banks involved in the IPO as ABN Amro Rothschild, Dresdner Kleinwort Wasserstein, J.P. Morgan, Morgan Stanley, Sberbank, Alfa Bank, Aton, Gazprombank, Renaissance Capital, Troika Dialog, Deutsche UFG and UralSib.