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Sunday, February 18, 2018

The privatization of “Bashneft” can hit the budget

The question, of course, sounds rhetorically today, the process is started and it is unstoppable, in any case, legally, but profitable sale of “Bashneft” in the interests of the state budget — it is an axiom. It is clear that the rules of the privatisation measures had “to agree on the beach”, however, the situation changed quite rapidly and quite unpredictably for some of its participants.

The problem today is that the refusal to participate in the privatization tender of the state companies, including one of the largest players on the Russian market — “Rosneft”, which is initiated, apparently, some of the organizers of the process and is triggered very hard, seriously reduces the value of this company. In the case of a decision about exclusion of state-owned companies from the list of potential candidates competition virtually disappear and will remain the only serious contender who will be able to dictate the terms of purchase of the asset. And this could lead to direct losses for the budget. The apparent contradiction between the stated objectives and expected result, in my opinion, is obvious.

In the event that one of the main contenders — “Rosneft” — will not take part in the privatization, loss of profits the state can be up to 50% of the value of the property being privatized (at the moment it is about 2.3 billion dollars).

According to analysts, the synergy effect from the purchase of “Rosneft” in Bashkir company is $2.6 billion.

In the case of acquisition of a stake in Bashneft by Rosneft will, so to speak, the “double privatization” — and itself “Rosneft” will soon be subjected to similar procedure. A sale of the stake in the largest market participant, to the same decapitalization “Bashneft”, sinergeticheskogo effect, is what is already a serious conversation.

Of course, from the cheap sale of package of shares of “Bashneft” will benefit private companies, but what is the interest then of the state? And this is not rhetorical, but a very pragmatic question.

It is clear that some of the organizers of the privatization process, advocating for the development of private capital, market procedures and so forth, but, recall that they represent the interests primarily of the state guard of the state budget and must act so as not to inflict direct or indirect damage. And it turns out then, that it is withdrawing from government agencies, they will go to the service just in those companies in which interests are in effect today. Not good, frankly, work…

Surprisingly, officials have begun to demand an exception “Rosneft” from potential buyers without any reason, because there is no Directive there is no trace.

The devil, as they say in the details. Rosneft, even after the payment of all debts, deductions for capital expenditures and dividends, funds for the purchase of “Bashneft” enough — still will be around 12 billion of the United States, but other participants, including “Tatneft” with their 0.4 billion dollars, “LUKOIL”, which has 4.7 billion dollars to purchase, the size of funds is clearly restricted. Moreover, this purchase if it is made in the interests of the state budget, can be a challenge for their own financial situation.

There are, of course, the state-owned Russian direct investment Fund (RDIF), which today concentrates the money of some foreign investors from China, India and middle Eastern countries, but it’s not clear how much his victory in the privatization tender will be beneficial for Russia. Of course, the FUND is party to a strategic, his work is actually supervised by the government, therefore, claims to it on the part of the organizers of the privatization process is not so much, or rather, they do not publicly identified. However, this does not negate the rules of participation in the competition, mandatory for all, without exception.

The market share of Russian property Fund in the “Bashneft” is assessed by independent appraisers at $ 4.6 billion, but the market today is volatile, the value of the company, if it is not artificially understate, then rising, then falling. In January 2016, when the shares of “Bashneft” was put up for sale, it was one price of a privatization package of 2.3 billion dollars, today the other 3.5 billion, the Increase amounted to almost 40%, which is a lot. Market participants argue that the growth cost was associated with the appearance on the competition of several companies with state participation, with explicit and implicit preferences over other players — “private traders”.

The official exclusion from the list of participants of privatization of “Rosneft” and other defendants in state-owned is guaranteed to drop the price of the package. And the behavior of some of the organizers of the process suggests that there is a zero-sum game”.

The art of buying is, of course, is to buy an asset at the bottom of the market, but it is very similar to the situation that recently in a scandalous video with his participation was described by Mikhail Kasyanov, explaining how he “earned” his fortune — “buying for 5 cents and selling for 5 rubles.”

In our case, such a practice can hardly be recognized by the market and civilized. Of course, I want to wish the participants of the privatization process, “may the best man win!” and add — “in a fair fight!”.

Political Analyst Alexei Mukhin

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