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. Last Updated: 07/27/2016

Basic Element Asks to Buy Russneft

Itar-TassA Russneft oil terminal in the Bryansk region. The firm will likely be sold for less than market value, analysts said.
Billionaire Oleg Deripaska's Basic Element has asked the Federal Anti-Monopoly Service for permission to buy embattled oil firm Russneft, a spokesman for the holding said Friday.

Sources familiar with the situation said this week that Russneft's billionaire owner Mikhail Gutseriyev had decided to step down as president of the firm, which produces 300,000 barrels per day of oil, after months of state pressure.

"A structure affiliated to Basic Element has made the request," the Basic Element spokesman said.

A source in the anti-monopoly service confirmed the request had been made and said the deal was not likely to meet much resistance.

"Deripaska's structure has asked for permission to buy six offshore companies which control Russneft," the source said. "Both Russneft and Deripaska's holding company are influential firms but if the terms for competition protection are met, we do not see any problems in approving the deal."

Russneft should be worth $11 billion but may be sold for from $5.5 billion to $6 billion since the government brought legal and tax claims against the company and Gutseriyev, Kommersant said, citing Maxim Shein, an analyst at Broker Credit Service.

Federal tax officials have brought a string of tax claims against Gutseriyev, threatening to nationalize Russneft's shares. On Monday, Moscow's Arbitration Court upheld a first $134 million tax evasion claim against Russneft.

Gutseriyev, whose personal fortune is valued at $3 billion by Forbes magazine, is himself charged with illegal activities "committed by an organized group on a grand scale."

Russian media said Gutseriyev had fallen out of Kremlin favor by buying assets from rival oil company Yukos before its bankruptcy last year.

Yukos was bankrupted by $30 billion in back tax claims. Its founder Mikhail Khodorkovsky termed the claims politically motivated, accusing the Kremlin of seeking to punish him for failing to toe the government line.

Russneft was set up five years ago from scratch when Gutseriyev, formerly the head of state-controlled oil firm Slavneft, bought some of its assets at knockdown prices soon after its privatization.

Chris Weafer, chief strategist at Alfa Bank, said it was possible that Deripaska's cash-rich Basic Element holding could scoop up the asset before passing it on to a state-controlled oil major like Rosneft, which is currently heavily in debt.

"This growing global credit crunch means it is less easy for big companies to get cash. They will be looking for alternatives to acquire assets without having to buy them," he said.

Gutseriyev's loss of Russneft would come as no surprise, Weafer said. "We expect that the state is going to dominate strategic industries," he said, adding that Kremlin-friendly firms like Basic Element would now help cash-strapped companies acquire more assets.

The business empire of Deripaska, whose personal fortune was estimated at $16.8 billion by Forbes in May, includes the company's largest aluminum producer, United Company RusAl and other assets in the metals, building and car industries.

Deripaska is a close ally of President Vladimir Putin and showed his loyalty in a recent interview by saying he was prepared to give up his business to the state if the state so demanded.

Reuters, Bloomberg, MT