Russia to offer Lukoil stakes at auction


Russia will offer a 1% stake in Lukoil at so-called "special auction" from May 5 to June 2 in an attempt to lure private investment.


Russia will offer a 1% stake in Lukoil at so-called "special auction" from May 5 to June 2 in an attempt to lure private investment.

During the auction, 8,155,600 ordinary shares are to be put up for sale at a price discount of nearly 12%; the starting price is set at 350 rubles/share. However, the actual selling price is expected be slightly higher.

In March, Russia sold 0.91% of Lukoil at 288 rubles/share, or 52% more than the starting price of 190 rubles. Nevertheless, at that time, the selling price of $10/share was lower than the going market price of $13.

Such special auctions usually produce more than one winner. The shares are generally awarded to bidders offering the highest price and in accordance with the total amount that each participant is willing to put up. After this special auction, the state will retain control of a 15% stake in Lukoil.

Lukoil will also ask shareholders to approve a 4% increase in equity. Two thirds of the newly issued shares (about 2.7% of share capital) are to be earmarked for acquisitions, while the remaining 1-1.5% of new equity will be used to attract financing through a new ADR issue.

Lukoil hopes to exchange its shares for those of Arkhangelskgeoldobycha, which holds licenses containing significant reserves, as well as KomiTEK and some of its subsidiaries. Such share swaps are unlikely to dilute the value of Lukoil shares over the long term, as the company will be acquiring significant reserves in exchange. Nevertheless, this move could spark short-term worries about oversupply, as new shareholders may want to liquidate quickly part of their holdings for cash.

As well, the sale of a 1-1.5% equity stake through an ADR structure does not give much reason for concern, as it should bring in $110-160 million to finance the company's expansion plans. However, a bigger downside risk exists in the government's plan to sell another 4.5-7% equity stake in the company this year through an ADR vehicle. This new supply of shares will not be balanced by any increase in value.

More in New Plants