Russia 110224 Basic Political Developments

Spyker Agrees to Sell Sports-Car Unit to Vladimir Antonov (1)

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aucsVU8GCQk4

By Ola Kinnander

Feb. 24 (Bloomberg) -- Spyker Cars NV, the Dutch owner of Saab Automobile, agreed to sell its sports-car unit to Russian businessman Vladimir Antonov to help reduce debt.

Antonov, a former Spyker chairman and shareholder, will pay 15 million euros ($21 million) for the maker of the C8 Aileron and other supercar models that retail for more than $200,000, the Zeewolde, Netherlands-based company said today in a statement. In addition, Antonov would pay as much as 17 million euros over the next six years tied to the unit’s future profits.

The Dutch manufacturer, which sold 36 cars in 2009, the last available data, has been losing money since it sold shares for the first time in 2004. Antonov held 29.9 percent of Spyker before General Motors Co. demanded that he get rid of his stake before agreeing to sell Saab to Spyker. Tenaci Capital BV, a company controlled by Spyker Chief Executive Officer Victor Muller, eventually bought Antonov’s stake.

“It’s a logical step to do this, so the company can focus solely on the Saab business,” Martin Crum, an analyst at Amsterdams Effectenkantoor BV, said by telephone. “Financially it’s positive as well because the debt will be reduced. It will reinforce the balance sheet and reduce the interest the company must pay.”

Spyker rose as much as 11.5 cents, or 2.2 percent, to 5.40 euros and traded at 5.38 euros at 9:42 a.m. in Amsterdam. Before today, the stock had risen 52 percent this year.

Saab Focus

“This transaction will allow Spyker Cars N.V. to focus on the Saab Automobile business exclusively, will eliminate the requirement for us to make further capital investment in the Spyker business, and will reduce our debt,” Spyker Chairman Hans Hugenholtz said in the statement.

The Dutch manufacturer owed about 74 million euros to Tenaci as of Sept. 30, part of which were funds that helped finance the acquisition of Saab in February 2010. To further reduce debt and interest, Spyker within six months plans to convert 17 million euros of its debt owed to Tenaci into shares, it said.

Muller will remain Spyker CEO until a successor is appointed, the company said. It will change its name ”shortly” to better reflect its greater focus on Saab.

Trollhaettan, Sweden-based Saab aims to sell 120,000 vehicles and become profitable by 2012.

Muller has said he’s considering listing Spyker’s shares also on the Stockholm exchange. The company plans to inform investors at its annual shareholder meeting on May 19 about its intentions, he said Jan. 4.

To contact the reporters on this story: Ola Kinnander in Stockholm at [e-mail];

To contact the editor responsible for this story: Kenneth Wong at [e-mail]

Last Updated: February 24, 2011 03:45 EST


VEB to pump cash into Far East as concern over Chinese influence grows

http://www.bne.eu/dispatch_text14285

bne
February 24, 2011

State development bank Vneshekonombank has been given until May to establish a fund to power investment in the Far East of the country amidst reports that Chinese influence in the remote region is growing.

Prime Minister Vladimir Putin first spoke of the fund in December, reports The Moscow Times, pointing out investment opportunities in the energy, metals, timber and fishing industries. At a board meeting of the bank on Tuesday, Putin - who is chairman - insisted: "All organisational matters for the establishment of the Direct Investment Fund for the Far Eastern Federal District and the Baikal area must be settled before May 1," according to a transcript on the website of the government's press service.

The PM went on to announce that VEB is assessing projects to the tune of RUB88bn ($3bn) in the region, although he offered no details. "Please regard the development ... of VEB's regional branches in the North Caucasus and the Far East among this year's priorities," he told the board, before assuring them: "I am sure that all plans that have been outlined will be implemented."

The pressing need for investment in Russia's remote and under-developed Far East has only been antagonized by recent reports that Chinese investment into the region outstripped federal funds last year, whilst many Russian's are buying property just across the border in search of a higher standard of living. A vision of Chinese hordes pouring into the under populated area is only growing more vivid as the China's economic power goes from strength to strength.

GM-GAZ JV?

http://www.bne.eu/dispatch_text14285

Renaissance Capital

February 24, 2011

Event: Vedomosti reported today (24 February) that General Motors (GM) is considering various opportunities to increase its production in Russia (to meet the requirements of the new assembly regime), including the possibility of creating a JV with GAZ Group. Earlier this month, GAZ entered into an agreement with GM to assemble 30,000 Chevrolet Aveo cars annually starting from 2012, and this production could potentially become part of a new JV.

Action: Positive for GAZ Group's stock price, in our view.

Rationale: The new industrial assembly regime appears to have provoked foreign car producers to strengthen their relationships with Russian producers, which is beneficial for the latter. In particular, we expect that assembling well- positioned Chevrolet-brand cars (the number-two brand, according to Association of European Businesses data on new passenger car and light commercial vehicle sales in 2010) will be positive for GAZ Group's revenues.

Ivan Kim

 

Castro closing stores in Russia

http://www.ynetnews.com/articles/0,7340,L-4027640,00.html

Israeli fashion chain decides to shut down its stores in Moscow, Volgograd and Yekaterinburg due to local franchisers' debts, violations of contract

Meirav Crystal

Published:  02.24.11, 07:41 / Israel Business

Israeli fashion chain Castro has decided to shut down three of its stores in Russia due to the local franchiser's debts and ongoing violation of contract terms.

The company informed its franchiser last week that it was annulling all the agreements and concluding its activity in the country. Castro expects the franchiser's bank guarantee, totaling about $1 million, will cover the costs of canceling the agreements. According to the contract, the merchandise which has yet to be sold is owned by the company, which can now sell it to third parties.

Therefore, stated Castro Co-CEO Gabi Roter, the annulment is not expected to have a fundamental impact on the company's activity.

Castro, which has been operating in the Russian cities of Moscow, Volgograd and Yekaterinburg since 2004, has been considering ending its activity in the country for quite a while.

The current franchiser is its second one in Russia, after the first franchiser got into debts as well. In November, the chain stopped shipping clothes to Russia and postponed the opening of a store in St. Petersburg.

In the fourth quarter of 2010, Castro shut down one of its stores in Germany as well. The chain is also active in Thailand, Switzerland and Kazakhstan.

DERIPASKA FAILS IN BID TO SWING NORILSK NICKEL SHAREHOLDER VOTES IN US, EUROPE

Read more: http://www.businessinsider.com/deripaska-fails-in-bid-to-swing-norilsk-nickel-shareholder-votes-in-us-europe-2011-2#ixzz1ErMW7Fsx

Feb. 24, 2011, 2:02 AM

By John Helmer, Moscow

Oleg Deripaska will fail to swing Norilsk Nickel’s international shareholders into voting for his slate of candidates for the new board of directors at Norilsk, according to a report and proxy vote recommendation by Institutional Shareholder Services/Risk Metrics, a Washington, D.C.-based advisory specialist.

With just days left before Rusal’s board must decide whether to sell its 25% of Norilsk Nickel back to the latter, and a fortnight to go before the Norilsk Nickel shareholders must cast their votes for a new board at an Extraordinary General Meeting (EGM), there is new evidence of impatience and hostility on the part of the international investment market towards Rusal CEO Deripaska’s personal campaign against Norilsk Nickel; and towards his refusal to conclude it on terms now favoured by most institutions, as well as by Rusal shareholders.

“We do not support Rusal’s claims regarding wrongdoing at the company’s AGM [Annual General Meeting] or October 2010 EGM, and do not comment on their claims regarding management abuses,” ISS concludes. “We believe that Rusal’s adverse reaction to the balance of the board issue has been disproportionate. The majority of Rusal’s accusations at Norilsk Nickel, particularly prior to the October 2010 EGM, have been unsubstantiated, according to the courts and other authorities to which it appealed.”

During the Rusal roadshow early this month, an American source comments, Maxim Sokov led the Rusal team – he runs Rusal’s investment strategy and is also a Rusal representative on the Norilsk Nickel board. The source claims Sokov did a better presentation job than the rival Norilsk Nickel briefing team. US institutions holding Norilsk Nickel shares include BlackRock, Vanguard Capital, and State Street Global Advisors.

But the Rusal message remains as unpersuasive this month as it was last October. Reports ISS “the current EGM is the second meeting Rusal has called following the AGM to try to elect a new board. We believe that such frequent EGMs where a termination of the board is proposed hamper the work of the board and distract company management from strategic and operational issues.”

The ISS report also recommends that the international shareholders vote for the two incumbent independent directors, Gerard Holden and Bradford Mills; and against all candidates proposed for the board, including Deripaska and Andrei Bugrov, the chief representative of Interros, the holding of Vladimir Potanin, who remains locked in battle for control of the company with Deripaska.

The reasoning of the report is that following the October 21 EGM vote, the board membership has been unbalanced in relation to the shareholdings. One reason for this, according to sources in London and Moscow, is that Rusal mismanaged the voting process at the last EGM. ISS explains that “Russian board elections are quite different from board elections in other countries. Not only does Russian commercial law require cumulative voting for directors at all companies, but most firms further complicate the process with contested board seats, offering many more candidates than the size of the board allows. As for the mechanics of voting this item, each ordinary share represents the number of votes equal to the size of the board that will be elected (i.e., since the board will be composed of 13 directors, each company share will represent 13 director votes). These director votes may be apportioned equally among the 27 board candidates or, if a shareholder wishes to exclude some nominees, among the desired candidates that remain.”

The current shareholder lineup at Norislk Nickel must be calculated from unofficial and imprecise estimates. They suggest that Rusal holds 25.13% of the shares; Interros, owned by Vladimir Potanin, has 25%; Trafigura recently acquired 8%; management-controlled quasi-treasury shares, 7%; and Metalloinvest, controlled by Alisher Usmanov and two partners, 4%.

The remainder is a free float of about 30%. Of these shares, the international investors with the largest blocs of shares range from 0.28% held by Baring Asset Management (UK) to 0.02% held by Halbis Capital Management (UK). The other international shareholders with identifiable blocs are CDP Capital World Markets; Swedbank Robur Fonder; Templeton Asset Management; APG Asset Management; BNP Paribas Investment Partners (UK); FIL Investments International; PGGM Vermogensbeheer BV; BlackRock Fund Advisors; Handelsbanken Fonder; BlackRock Investment Management (UK); Vanguard Group; Clariden Leu; DWS Investment GmbH; Sinopia Asset Management; State Street Global Advisors; and Sydbank (Investment Management).

ISS calculates that effective control of the board is held by Interros with five board directors with ties to Potanin – Andrei Bugrov, Andrei Klishas, Boris Bakal, Marianna Zakharova, and Dmitry Kostoyev. Of the 13 directors on the board, that makes 35.8%. Rusal holds three seats, making 23.1% of the board; minority shareholders with an estimated 30% of the shares are represented by two independents, Gerard Holden (a resource banker from Barclays Capital until 2006) and Bradford Mills (a mining veteran from BHP and Lonmin), making 15.4%. The company management is represented on the board by CEO Strzhalkovsky and his first deputy Oleg Pivovarchuk.

According to ISS’s conclusion, “while it does not appear that this situation has resulted from any illegal actions by Interros or the company, this is nevertheless an unbalanced board.”

In October the international institutions appear to have largely abstained from casting their votes in favour of either of the major Russian shareholders; that gave additional weight to the government and to Interros to beat off Rusal’s candidates.

Examining the official vote counts which were announced after the EGM, Rusal appears to have voted its 25%, and added 13.4% of other shareholder votes to make the aggregate against the incumbent board of 37.88%. Opposed, Interros voted its 25%; the Norilsk Nickel management voted the 8% bloc of treasury shares; Metalloinvest voted its 4%; and the balance of the free-float made between 9% and 10% for the official aggregate in favour of preserving the incumbent board – 46.9%.

At the time, Rusal claimed there were more free-float votes in favour of Rusal than for Norilsk Nickel. However, only 151.7 million shares were counted in the EGM ballot out of a total issue of 190.6 million. This indicates the abstention of 38.9 million shares (half the free float), and the refusal of those free-float shareholders to support either Rusal or Norilsk Nickel.

Abstention may have meant a pox on both your houses, as some investment fund managers admit to thinking. But the practical effect, and thus the intention of those abstaining from the vote in October, was to support the incumbent board against Rusal. Counting this with the vote supporting the Norilsk Nickel position made 56.8 million share votes. That amounted to three-quarters of the total free-float – and also double the 25.5 million share votes from the free float in favour of Rusal.

The ISS report doesn’t report or analyze these data beyond concluding that in outcome for the current board, “one shareholder, Interros, exerts disproportionate influence.” ISS also counts the state appointees to the board – the two Norilsk Nickel managers, and Vladimir Titov, the senior vice president of VTB, the state bank – to favour Interros. The ISS reports cites VTB’s $3.2 billion loan to Potanin in 2009, but omits to mention its backing for Rusal’s debts and its Hong Kong listing at the end of that year.

The most recent statement of the Russian government’s position indicates that the board’s current lineup reflects the government’s policy. Deputy Prime Minister Igor Sechin, who supervises the resource concessions and controls the oligarchs, answered questions from the Wall Street Journal about the oligarch conflict on the Norilsk Nickel board by saying: “The government does not intervene in corporate practices….The shareholders should take the appropriate decisions, most importantly that they [should be] civilized, in the framework of the existing legislation.”

This, too, is thumbs up for the status quo, thumbs down for Deripaska’s campaign. While some analysts believe Deripaska’s campaign amounts to greenmail, forcing Norilsk Nickel to raise its buyback offer and increase its debt in order to end the conflict, Sechin’s latest remark suggests that state interests will share in the rising premium.

In its recommendation to the foreign minority shareholders, ISS is also backing the status quo against Deripaska. “Based on the company’s ownership structure and the voting dynamics at previous general meetings, we strongly believe that minority shareholders would be best served by cumulating their votes for no more than two independent candidates. Cumulating for three or more nominees poses a significant risk of diluting the minority shareholder vote, resulting in fewer independent directors than would otherwise be possible.”

“While we recognize the qualifications of all the proposed candidates, including all seven nominees who meet ISS’ criteria for independence, we believe that minority shareholders would be best served by cumulating for the incumbent independent directors, Holden and Mills, at this EGM.”

Norilsk Nickel has issued a brief acknowledgement of the ISS report. Rusal has so far made no response.

Activity in the Oil and Gas sector (including regulatory)

Russia's LUKOIL clinches Romania Black Sea deal

http://www.reuters.com/article/2011/02/24/lukoil-offshore-romania-idUSWLB510520110224

MOSCOW | Thu Feb 24, 2011 2:33am EST

MOSCOW Feb 24 (Reuters) - Russia's No. 2 oil company, LUKOIL (LKOH.MM) said on Thursday it signed a deal with the Mineral Resources Agency in Romania for the exploration and development of two offshore blocks in the Black Sea.

Lukoil owns 80 percent of the consortium that won the concession to develop the Est Rapsodia and Trident blocks. US-based Vanco International owns the remaining 20 percent.

The total area of the two blocks, 60-100 kilometres off the coast of Romania, is 2,000 square kilometres.

(Writing by Jessica Bachman)

Novatek May Get TNK-BP’s Kovykta Gas Field, Kommersant Reports

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aHbJeGeIKMHg

By Henry Meyer

Feb. 24 (Bloomberg) -- OAO Novatek, Russia’s largest non- state gas producer, may win the auction for TNK-BP’s bankrupt OAO Rusia Petroleum unit, which holds the license to the giant Kovykta gas deposit in eastern Siberia, Kommersant reported, without citing anyone.

OAO Gazprom, Russia’s gas-export monopoly, doesn’t want to lead development of the field because it has other big projects, though it will probably be involved in Kovykta, the Moscow-based newspaper reported.

To contact the reporter on this story: Henry Meyer at [e-mail]

To contact the editor responsible for this story: Brad Cook at [e-mail]

Last Updated: February 24, 2011 00:30 EST
Oilfield Services: No Euphoria Yet, but Steady Growth Ahead

http://www.bne.eu/dispatch_text14285

Alfa Bank

February 24, 2011

The Russian OFS sector is fit and ready for growth. 2010 looks to have been a year of consolidation for the trio. We believe they have built up solid bases and are ready to take on extra work, which they may get thanks to the oil tax reform. Integra is set for a rally, with the market having broadly ignored its positive transformation in 2010; EDC has a proven track record of efficiently meeting its targets and has more M&A plans ahead; and C.A.T.oil is slowly but surely diversifying its business to include potentially value-accretive drilling and sidetracking.

Investment Case
Demand to increase: An oil price around or above $90/bbl, tax reform and declining brownfield production should stimulate demand from producers, who will increase spending on maintaining production levels at core fields. We estimate oil majors' CAPEX will grow 30% in 2015 vs. 2010, excluding a potential boost in spending from the upcoming greenfield tax reform.

Greenfield reform to boost producers' CAPEX: The proposed greenfield reform, aimed at revitalizing Russian oil production growth by encouraging investment in greenfield projects, will fuel OFS companies' growth. Reduced crude oil taxation should stimulate upstream investment and unlock new areas for development.

Deconsolidation of OFS assets to open new doors for independents, though it will intensify competition between market participants.

Integra (O/W, TP $4.4) is set for a rally now that it has put its operations in order. The new management team has disposed of the troublesome manufacturing segment; optimized the drilling segment, increasing crew utilization to over 85%; and formed a seismic JV with Schlumberger. With its debt problems a thing of the past, we see Integra breaking even in 2011, a trigger which could lead to a re-rating as investors see Integra's potential for operating excellence and its financial stability.

Eurasia Drilling Company (E/W, TP $30.5): EDC is increasing capacity even though it is already the largest independent driller in Russia. Its alliance with Schlumberger added materially to capacity and could contribute as much as 14% to 2011 EBITDA, while its order of an additional offshore rig and negotiations to acquire another (TRIDENT XX) are in line with plans to expand its offshore business. Gazprom Neft and Slavneft assets to be put on sale shortly provide further M&A potential, which could help EDC become less dependent on LUKoil.

C.A.T.oil (O/W, TP $8.5) is a quality player in hydrofracturing and sidetracking and is about to expand its operations into conventional drilling. We believe the company is well-managed and enjoys excellent long-term prospects. It has been careful in picking which segments to focus on, reducing the weighting of the lackluster fracturing segment.

Valuation and Risks
Valuation: Integra, EDC and C.A.T.oil currently trade at 2011E EV/EBITDA of 7.5x, 6.4x and 5.0x, respectively, vs. the global peer group average multiple of 10.3x.

Risks: A drop in the oil price and delays to the tax reform remain the main risks faced by the OFS industry; intensifying competition from global majors could create pricing pressure.

Gazprom

24.02.2011

Nord Stream Lines 1 and 2 on Track

http://www.oilandgaseurasia.com/news/p/0/news/10667
Construction of the Nord Stream Pipeline continues on track. Over 1,000 kilometres of Line 1 have been laid in the Baltic Sea and pipe-laying works have already been completed at the landfalls for Line 2. The project has received all the necessary permits, and all pipes and construction capacities have been procured. “Gas deliveries from Line 1 will begin before the end of 2011, and Line 2 will be launched in 2012,” says Matthias Warnig, Managing Director of Nord Stream AG. The construction schedule of both lines is confirmed by all of Nord Stream’s shareholders.  

Copyright 2010, Nord Stream AG. All rights reserved.