Rosneft CEO Sergei Bogdanichikov with his picture of Putin
As the war in the Middle East continues to dominate the headlines and drive up oil prices, the biggest news in global energy markets this week continues to be OAO Rosneft's initial public offering.
As Austin, TX based Strategic Forecasting notes, until two years ago, Rosneft was an afterthought in the Russian oil market, a state-owned pigmy next to the privately-owned giants Lukoil, Yukos (Mikhail Khodorkovsky) and Sibneft (Roman Abramovich). Then Mikhail Khodorkovsky tried to sell his company to several multinational oil companies while buying influence in the West, portraying himself as the champion of opposition to Putin. The Kremlin responded to Khodorkovsky's hubris by dismembering Yukos and banishing the oligarch to a Siberian prison, far away from the friends he thought he could buy on Capitol Hill. Now the same oil majors Khodorkovsky thought would protect him from the Kremlin are buying shares in the empire he built, based on assets the oligarch stole from the Soviet Union.
Rosneft's offices facing the Kremlin
Rosneft originally announced last year that they wanted to raise $8.5 billion, then this figure became $11 billion - this in spite of billionaire investor George Soros' criticism that investors would be buying stolen assets (true enough, but every major asset in Russia today was stolen from someone). Now some analysts think that Rosneft could get more than $17 billion from foreign investors. With the value of Yukos pegged conservatively at $30 billion in 2004, and with Rosneft acquiring chunks of Sibneft from Gazprom after Roman Abramovich cut his deal with the Kremlin, the estimated value of the company has increased by an order of magnitude (from $8 billion to $80 billion) in barely two years.
While some analysts are calling this the IPO of the decade, Rosneft is only allowing foreigners to buy 2% shares, for a total of 49% foreign ownership. The Russian state will continue to have total control over the company - but it seems that the world is so desperate for oil that even powerful multinationals like BP will agree to this one-sided arrangement, and trust Mr. Putin's associates with their billions. Domestically - no surpise here - Gazprom Bank and the energy giant's corporate pension fund is the single largest investor in Rosneft, followed by $750 million from other Russian private investors. In Europe, Dresdner Bank is putting up $300 million, and this is also not much of a surprise, considering Gazprom's recent hiring of former German Chancellor Gerhard Schroeder. The IPO reportedly is also being underwritten by ABN Amro Rotshild, DrKW, J.P. Morgan Securities, Morgan Stanley and the Bank of the Russian Federation.
Besides billion dollar offers from BP, Malaysia's Petronas Bank, and Petrobras (Brazil's state oil company), China Daily has confirmed Stratfor's earlier report that the China National Petroleum Corporation is offering Rosneft $500 million. However, this proposal is just the tip of the iceberg of Chinese investment in Russian oil development. As Russia Blog reported last year, when the Kremlin needed $10 billion cash to buy Yukos in a rigged auction for 1/3rd of its value, they turned to Beijing, and the Chinese are being paid back in crude locked in at 2005 prices.
Nonetheless, even the Chinese are seeing that barter is of limited value and that the Kremlin wants to legitimatize the state's seizures by publicly bringing in foreign capital, thus insulating the "national champions" Rosneft and Gazprom from future lawsuits in U.S. and European courts over the plundering of Yukos. Now Rosneft is in the unprecedented position of getting to pick from among its suitors.
UPDATE: Another version of this article has been posted Monday, July 24 on the Real Clear Politics website.