Page 22 - bne_Magazine_September_2018

22 I Companies & Markets bne September 2018
bne:Funds
Russia's Rosneft launches first ever share buyback programme as part of investment makeover
bne IntelliNews
Russia's largest oil company, state-controlled Rosneft has launched the company’s first ever share buyback programme worth $2bn that will last until December 2020 acquiring a maximum of 340mn or 3.2% of company's share capital and a third of the freefloat, the company announced on August 6.
Rosneft pitched the buyback to investors in May, along with a pledge to cut its record-high debt burden in an effort to improve its valuation as compared to global peers. In the first quarter the company already delivered on the promise and started deleveraging.
It is not yet clear whether Rosneft would cancel the bought shares and the bank, which will manage the buyback, has not yet been chosen yet. Nevertheless, the market met the buyback news positively as of August 6 with Rosneft's shares gaining 2.7% in Moscow on the opening of the market.
At the same time the shrinking freefloat of Rosneft could limit the number and quality of Rosneft's investors, analysts surveyed by Vedomosti daily warn, estimating that post- buyback the freefloat will amount to 7.5-7.8%.
In May Rosneft planned to finance the buyback through "organic free cash flow and sales of non-core assets", with the free cash flow [FCF] and cash accounts estimated
by Vedomosti at about $9.7bn.
Previously the head of state-controlled oil major and influential Kremlin insider Igor Sechin argued that the fair value of Russia's largest crude producer Rosneft is about half of what it should be thanks to sanctions on Russia.
As a world leader in terms of reserves and one of the leaders in terms of costs, Rosneft should be valued closer to or $130bn, Sechin argued in January when Rosneft's capitalisation stood at $65.8bn, since then declining further to $55bn.
The investment case of private Lukoil oil major has previ- ously been compared to Rosneft. The company's capitalisation caught up with that of state behemoth, closing the valuation
“Rosneft pitched the buyback to investors in May, along with a pledge to cut its record-high debt burden in an effort to improve its valuation”
gap although it extracts less than half of the oil and gas Krem- lin-controlled Rosneft does. This year Lukoil also announced a $3bn buyback and a separate buyback for treasury shares.
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