In today’s Russia, privatisation can mean one state company buying another.
So it is that state oil group Rosneft, Russia’s largest oil producer, has emerged as a leading contender in the sale of a controlling stake in Bashneft, the country’s sixth-largest oil company. The move is counterintuitive: Rosneft is 69.5 per cent owned by the Russian state and itself on the list of assets due for imminent privatisation.
If successful, an acquisition of Bashneft would further consolidate the Russian oil sector under the control of Igor Sechin, Rosneft’s powerful chief executive. Mr Sechin has already transformed Rosneft from a bit player to the world’s largest listed oil company by output in the past decade, buying up assets that had previously been owned by Yukos and spending $55bn to buy TNK-BP in 2013.
“With scale comes power,” said Ildar Davletshin, energy analyst at Renaissance Capital. “With Bashneft, I think Rosneft will control almost half of Russian output which will make it super powerful in terms of setting the framework for the industry.”
Rosneft, which had previously disavowed interest in Bashneft, earlier this month said it would consider bidding and several people familiar with the discussions confirmed its interest. On Tuesday, Russian news agencies Interfax and Tass reported that it had submitted a preliminary bid, along with several other suitors including privately owned Lukoil, the second largest Russia oil company by output. Several Rosneft spokespeople did not respond to requests for comment.
Bashneft’s current market value is Rbs570bn ($8.6bn), meaning a controlling stake would be worth $4.3bn.
The potential deal marks the latest twist in the company’s convoluted history. It was privatised in the early 2000s, only to be renationalised in 2014 after its oligarch owner, Vladimir Yevtushenkov, was placed under house arrest.
Some in Moscow’s business circles suspect the proceedings against Mr Yevtushenkov were orchestrated by Mr Sechin, who had first raised the possibility of buying Bashneft a year earlier. Mr Sechin has rejected this, telling Bloomberg his supposed involvement was “a red herring.”
“They’ve had their eye on Bashneft since 2013. It’s not a shock to hear they’re interested,” said James Henderson, Russian oil specialist at the Oxford Institute for Energy Studies.
Rosneft’s renewed interest in Bashneft has stirred controversy in Moscow. Last week, Dmitry Peskov, spokesman for president Vladimir Putin, said that “an understanding” had been reached within the government and the Kremlin that state-owned companies should not participate in the privatisation programme.
But on Tuesday Mr Peskov said that Rosneft “formally speaking, is not a state company” since it is owned indirectly via a holding company. “Of course, there are different opinions on this,” he added. In private, other government officials have been more critical.
Bashneft is one of the most attractive assets put up for sale under a privatisation programme announced by Mr Putin earlier this year amid tumbling oil prices. It is one of the few Russian oil companies that has succeeded in significantly increasing output in recent years, with production rising 55 per cent from 2010 to 424,000 barrels a day this year.
The potential sale of a controlling stake in the company has attracted a wide range of interested buyers, including a group set up by a former chief executive of Rosneft and a refinery part-owned by a former classmate of Mr Putin’s.
“There’s a line from here to the Kremlin to buy Bashneft,” said a person familiar with the privatisation process.
Analysts at Otkritie, a bank, argued that Rosneft would be the best buyer for Bashneft. “Integrating Bashneft would be yet another mark in the already impressive list of M&A deals for the state champion,” they said in a note that was circulated to journalists by Rosneft representatives.
Additional reporting by Max Seddon and Kathrin Hille
