New oil tax
proposals by year-end. Igor Sechin, Deputy
Prime Minister and Chairman of Rosneft, said this afternoon that the government
will submit new oil tax proposals to the Prime Minister by the year-end. The oil
industry, in particular, Rosneft, has been battling with the Finance Ministry
for a significant reduction in its tax bill to help fund capex. So far, the
Finance Ministry has prevailed with its argument that the government needs the
revenue to fund investment into infrastructure, new industries, SMEs, etc. If
investors believe that the oil companies may get the PM’s support for a tax cut
in 2011 then valuations will rise. Too early to say how likely that is but any
new optimism may spark some speculative price gains. This is at least one of the
reasons for the 3.8% price gain in Rosneft (ROSN LI) today.
State may sell
Rosneft equity. Another factor in
how Rosneft’s share, and those of the other state companies, may perform comes
with Sechin’s comment that the sale of shares in Rosneft (and in INTER RAO, over
which he is also Chairman) will “depend on market conditions”. The clear
implication being that the debate in government over whether to sell more shares
is now resolved and that the sale may go ahead when markets improve. That ties
in with a statement made earlier in the day by the head of the Union of
Industrialists in Russia. He said that the government should press ahead with
selling surplus state equity holdings to fund the budget deficit. Cutting the
state’s direct involvement in the economy is also a major priority for President
Medvedev. Up to now, however, there was no indication that the government has
agreed the strategy for for selling additional equity in the major listed state
enterprises. We may now see this as a big part of the state’s privatization
programme in 2011.
State could earn $33
bln.
If the state were to cut its equity in Rosneft back to a 50%+1 stake (as it has
in Gazprom) then it would generate $19.6 bln from selling the surplus equity. If
the state were to do the same with Sberbank, VTB and Federal Grid, then the
total generated (at the current market value of each company) would be $33.4
bln.
Hong Kong is an
option. If this were to go
ahead then the equity issuance could, at least in part, form part of a secondary
placing in Hong Kong. Rosneft has the Asia credentials with the deal to supply
China with oil as part of the “oil for debt” deal. It is thought that the
government is very keen to boost its Asia credentials ahead of the ASEAN Forum
to be held in Vladivostok in 2012. A listing of Rosneft shares in Asia would
make sense in that regard. Given the scarcity of major oil shares listed in
Asian bourses, the demand from regional directors would likely be high.
But,
specter of YUKOS refuses to go away. Mikhail
Khodorkovsky started a hunger strike today and that is already generating
unfavorable headlines about Russia around the world. The action does serve to
remind that the YUKOS factor is still a part of the perception of investment
risk in Russia. Existing investors discount the issue but as the government
pushes ahead with the “modernization” programme it will need to attract in an
increasing number of investors into industries outside of natural resources.
Investors in, e.g. oil and mining industries, are very risk tolerant (you don’t
find oil in Switzerland) while investors in other industries are more sensitive
to investment risks. The Strasburg Human Rights court is currently considering
the $98 bln claim that ex YUKOS shareholders have been pursuing against Russia
since 2004 and may make a ruling this summer. That will generate a big headline
for sure.