The transfer of Bashneft to private ownership was accompanied by a major financial scandal.
The Prosecutor General's Office of the Russian Federation managed to prove the illegality of the primary privatization and the involvement of the son of the former president of the Republic of Bashkortostan in this. The stolen shares were returned to state ownership. The oil giant was re-sold to Rosneft. The value of the company's net assets as of the end of 2018 is RUB 351 billion. ($5.5 billion). In the eyes of ordinary people, the sale of state-owned enterprises in the oil and gas sector is inextricably linked with corruption scandals and financial fraud. One of these high-profile cases was the privatization of Bashneft, the largest oil producing association in Bashkortostan.
A little history of Bashneft
The history of the company dates back to 1932, from the discovery of the Ishimbay oil field on the territory of the Bashkir Autonomous Soviet Socialist Republic (present-day Bashkortostan). Since 1946, the enterprise has been operating at full capacity, combining within its structure several trusts involved in oil exploration, production and refining. The Ishimbayskoye field turned out to be so rich that by 1954 Bashneft became the all-Union leader in the oil production sector.
After the collapse of the USSR, the association was reorganized into a joint-stock company (1995), and in 2002 the privatization process began, which subsequently resulted in a major corruption scandal involving the leadership of the Republic of Bashkortostan.
This is interesting: currently, Bashneft’s resource base includes more than 180 fields located in the European part of Russia and Western Siberia. More than 21 million tons of crude oil are produced annually.
How the momentum was gained
In 2002, the six largest enterprises of the fuel and energy complex of Bashkiria, including Bashneft, were illegally privatized by certain LLCs, and then in 2003 transferred to Bashkir Capital LLC, the unofficial owner of which was Ural Rakhimov, the son of the current at that time the President of Bashkortostan Murtaza Rakhimov.
The composition of the founders of Bashkir Capital LLC. Source: according to www.list-org.com
He also headed the association, becoming the General Director of JSC Aktsionernaya Neftyanaya for the period from 2006-2009.
However, the process of removing oil and gas industry enterprises from state ownership did not end there. In 2005, 25% of the shares of Bashneft and the other five giants of the fuel and energy complex (Ufa Refinery, Novo-Ufimsky Refinery, Ufaneftekhim, Ufaorgsintez, Bashkirnefteprodukt) were sold to OJSC AFK Sistema, a large Russian company , engaged in investments in the real sector of the economy. The transaction amount was USD 600 million. The funds for the purchase were transferred to investment funds controlled by the same Ural Rakhimov.
Photo: Yandex. Images
In 2009, AFK Sistema was able to buy out controlling stakes in these six enterprises, in fact becoming the full owner of the entire Bashkir fuel industry. The purchase cost $2,500 million. In total, by 2011, the main shareholders of Bashneft were AFK Sistema (61%) and OJSC Sistema-invest (25%).
This acquisition was followed by a number of other transactions. Shares of several large fuel and energy enterprises were purchased, including:
- OJSC "Orenburgnefteprodukt" (2011);
- Burneftegaz LLC (2014).
These two enterprises also became part of the Bashneft structure.
Reference: as of 2021, Bashneft controlled 4% of production, 7% of Russian oil refining and 12% of the domestic gasoline market.
Rosneft absorbs Bashneft. Why is this “the most senseless farce in modern Russian history”
Sergei Zvenigorodsky, head of the retail sales department of SOLID Management Management Company : In fact, the current scenario of the “privatization” of Bashneft and the possible subsequent purchase by Rosneft of its own securities from the state will become either the most senseless farce in the history of the economy of modern Russia, or the most complex multi-step , which the world has only seen. In fact, since the announcement of the state’s plans to abandon the sale of the state share of Bashneft using market instruments, the list of contenders who could actually acquire 50.08% of the shares has been reduced to just a few of the largest Russian companies. (Let me remind you that a strategic investor applying for the acquisition of a state share could only have a Russian “registration”, and funds for the purchase could not be raised using loans from state banks.) But now it is obvious that neither LUKOIL nor TATNEFT are ready offer as much for Bashneft as the state wants. It’s no joke, independent estimates of the asset differ from the 330 billion rubles declared by the state. almost 90 billion. At the same time, Rosneft has that kind of money, and the interest of the already largest player in the Russian oil market in further expansion, apparently, was not exhausted by the purchase of TNK-BP. It is clear that the state now has little choice, budget holes are growing, the deficit is increasing, and it is becoming increasingly difficult to sell Bashneft on its own terms.
By and large, you can safely forget about plans to carry out privatization for decades. The privatization of the state stake in VTB has been postponed, Aeroflot, Sberbank, Sovcomflot have also been shelved, and, finally, the reports that have caused a lot of noise that the state stake in Rosneft will go to Rosneft itself have finally killed the dream that the budget will be replenished by laws of the market.
For the Russian market, and for the economy as well, this is an absolute negative. Firstly, privatization assumed that investments from outside would be drawn into the economy, but in reality it turns out that the entire privatization process comes down to transferring public money from one pocket to another, and, in principle, no new money can appear in the economy. Secondly, to purchase itself from the state after the acquisition of Bashneft, Rosneft may not have enough available funds, which means that completely or partially 700 billion rubles. will be borrowed from state banks. That is, state banks will give the state company money to buy out the state block of shares from the state - a situation that best characterizes the operation of the mechanisms of a market economy in a country where 70% of GDP is generated by the public sector. Thirdly, the growing Rosneft is increasingly less compliant with the principles of antimonopoly regulation. I think that this time the FAS will still have to approve the deal, no matter what, but in the future, the excessive expansion of Rosneft will definitely create a threat of risks of abuse of its position in the market, which can be called dominant even before the purchase of Bashneft.
Roman Tkachuk, senior analyst at Alpari : In our opinion, replenishing the budget revenue is one of the main reasons. Rosneft offered the highest price for this asset. The remaining contenders - LUKOIL, TAIF - stipulated in advance that they were interested in this asset, but not at any price. Previously, a number of government officials opposed this privatization option, since Rosneft is formally a state-owned company.
But Sechin managed to enlist the support of key officials - his strong position in the government had an impact. Igor Sechin is a supporter of the “nationalization” of the economy. Currently, about 80% of the Russian economy is the public sector. The question of whether this is good or bad lies in the plane of which companies are more effective - public or private. With the sale of Bashneft to Rosneft, of course, the very idea of privatization as the sale of state property into private hands is called into question.
In our opinion, the likelihood that Rosneft will buy back its shares is low. Now the company is structuring the Bashneft transaction and further integrating this asset into its structure. Of course, the deal will have a synergistic effect due to the optimization of oil flows and comprehensive development of fields. Refineries will well complement Rosneft's production capacity.
The deal to sell 19.5% of Rosneft is more complex. After all, we are talking about one of the world's largest oil companies, which is under sanctions from Western countries. Therefore, it is not easy for the seller and potential buyers (including Chinese and Indian investors) to agree on the price of the asset; consultations are ongoing. Against this background, various exotic options arise.
At the moment, Rosneft has enough funds to close the deal - at the end of the second quarter it had $17 billion and no additional borrowings will be required. In addition, Rosneft recently closed deals with Indian investors to sell shares in Vankorneft JSC and Taas-Yuryakh Neftegazodobycha for $2 billion and $1.12 billion, respectively. Let me remind you that the sale of stakes in the Russkoye field on Yamal and Chaivo on the Sakhalin shelf to Indonesian and Chinese investors is currently under negotiations.
Perhaps the funds for the purchase of Bashneft were accumulated in advance, so the company is ready for it and financial disruptions are not expected. Another question: perhaps it was worth using funds to reduce the debt burden, and not to enlarge the company?
Dmitry Lukashov, IFC Markets analyst : I believe that the conditions for the sale of the state stake in Bashneft can be called quite acceptable. The fact that Rosneft will be the buyer is positive for the Russian economy. The fact is that, even with low world oil prices, Bashneft earns about $200 million in net profit every quarter. Foreign investors would withdraw half of this amount abroad, but now this money will remain in our country. In my opinion, the government may be happy with the terms of the deal. Today, the market capitalization of Bashneft is 630 billion rubles. For 50.0755%, the state will receive 330 billion rubles, which, as we see, corresponds to market prices. Privatization took place, income was received, everything is fine. Investors partly agree with this. The Moscow Exchange index is growing for the third trading session in a row. The ruble exchange rate against the US dollar shows stability.
Bashneft does not produce much oil, but it does own a large amount of oil refining capacity. This is a key factor in the company’s attractiveness and, in my opinion, will provide a good positive, synergistic effect when merging with Rosneft. Ideally, Russia should reduce oil exports to a minimum and supply only petroleum products abroad. This is exactly how, for example, the US oil industry works, which supplies gasoline and other fuels to all of Latin America, making good money from it.
In my opinion, Rosneft’s debts are not “colossal” at all. Now they rather look quite acceptable. The fact is that in the last couple of years there has been a powerful drop in the yield of corporate debt instruments due to rate cuts in the US, EU, Japan and other countries. Rosneft's net debt to EBITDA ratio for the first half of 2021 is 4.8. This is even slightly lower than the global average for the oil industry, which is 5.
Alexey Antonov, analyst at Alor Broker : In my opinion, the connection between the attempt to replenish the budget bins and the takeover of Bashneft by Rosneft is obvious. Based on past examples, no one had any illusions on this score. The only intrigue that remained was whether LUKOIL would be able to negotiate acceptable terms for the purchase of a stake in Bashneft; it turned out that it would not. Such privatization shows the increasing role of the state in the seemingly market mechanisms of the stock market. The stock market has gained another heavyweight, which has long overtaken Gazprom in market capitalization and growth prospects remain quite high.
The effect of privatization on the budget, in my opinion, will be neutral, because the state-owned company buys from the state. As for the impact of this transaction on the company's debt load, $5 billion is not the kind of money that will radically change the industry, but the effect will be long-term. Rumors that Rosneft would sell foreign currency were dispelled by the company's press secretary, Mikhail Leontyev. In the event of a sharp change in market conditions, namely in light of the fall in oil prices, the state, of course, will not allow such a large player to go to the bottom, and will certainly help - but in what way, will it be preferential loans, or something else? , - Time will show.
Alexander Shustov, General Director of MFO “Mani Fanny” : The government’s actions in this case are difficult to explain from a rational point of view. Postponing privatization and carrying out such an important transaction in this way will have a bad impact on the budget. After all, it’s not just about Bashneft alone, it’s about the course of the privatization process as a whole, what will be the demand for those 19.5% of Rosneft from international investors. The loss of income from privatization will need to be compensated by other sources, and the resource of increasing the tax burden and devaluation of the ruble has already been largely exhausted. Therefore, it is negative for the Russian market to postpone this transaction, but when it happens, investors are more likely to react positively. The synergistic effect of the merger of Rosneft and Bashneft for the industry will be approximately $2-3 billion. I believe that this transaction will really shake up the foreign exchange market, the demand for currency will increase, and this will be negative for the ruble. Rosneft can be called one of the most experienced oil companies in Russia in terms of mergers and acquisitions. Since 2013, Rosneft has made 12 different acquisitions, including production, refining, and much more.
Alexey Kalachev, expert analyst at FINAM JSC : The ultimately adopted scheme for the sale of Bashneft shares demonstrates at least two things. The first is that the management of Rosneft has almost limitless administrative resources, which, however, is already known. And the second is that apparently, yes, the state needs money here and now so much that in order to solve the tactical problem of filling the budget, it is ready to sacrifice the strategic task of maintaining competition in the oil industry.
Rosneft offered the best price, and in a short time, such an offer turned out to be impossible to beat. The only real contender - LUKOIL - is not ready to pay that much, even at an auction, even without an auction. LUKOIL is still a private company and must be able to count.
This will no longer be a big negative for the market; everyone has already understood that there will not be a special influx of foreign investment - for foreign investors, the risks in the current foreign policy situation are too high, and there are few domestic funds with such volumes of free funds. The idea of privatization degenerates into a redistribution of assets between near-state pockets and “pulling out” nest eggs from them to fill the budget.
With the purchase of Bashneft, Rosneft at least receives the company's shares in the fields, which increases the estimate of its reserves. However, if Rosneft buys itself out, this will have only an indirect relation to market valuations, and the price of the buyout in the conditions of simulated privatization will be announced based on the results of its approval by the parties to the transaction.
I think another complicated scheme for financing the transaction will be found in order to avoid unnecessary fluctuations in the foreign exchange market - with a deferment, in installments, on terms of mutual offsets. In the end, Rosneft will borrow the necessary funds from Rosnenftegaz to buy back its 19.5% stake. They'll come up with something in this style.
Dmitry Zhuravlev, director of the Institute of Regional Problems : I think that budget problems in the sale of Bashneft are decisive. The need to legally transfer part of Rosneft’s money to the budget seems to be the only purpose of this deal.
The takeover of Bashneft is unlikely to produce a synergistic effect, since capitalization is determined by world exchanges, whose positions are influenced not by economic, but by political factors. But the deal still makes sense: to replenish the budget, you need to sell shares on the foreign market, and it is still easier to sell Rosneft shares than Bashneft.
Probably, withdrawing money from Rosneft through the purchase of Bashneft will worsen its situation. But, firstly, the monopoly does not die, and secondly, today replenishing the budget seems to the government a more important task than the development of the oil industry.
Deprivatization of the company
The concentration of essentially the entire fuel and energy complex of Bashkiria in one hand could not fail to attract the attention of the Investigative Committee. In 2014, an investigation began into the theft and legalization of shares of fuel and energy enterprises. The owner of AFK Sistema, Vladimir Yevtushenkov, was charged with money laundering. At the same time, the Prosecutor General's Office of the Russian Federation seized the shares of Bashneft and demanded their return to state ownership.
A criminal case was also opened against Ural Rakhimov on charges of laundering illegally obtained funds (Article 174.1 of the Criminal Code) and embezzlement on an especially large scale (Article 160 of the Criminal Code).
Ural Rakhimov has repeatedly been included in the ranking of the 100 richest businessmen in Russia, according to Forbes. In 2010, he took 828th place in the list of the richest people on the planet with a fortune of $1.2 billion.
The claim of the Prosecutor General's Office was satisfied by the Moscow Arbitration Court, and 81.67% of Bashneft shares were withdrawn from the accounts of AFK Sistema and OJSC Sistema-invest and transferred to federal ownership. The owners were the Federal Property Management Agency and the Republic of Bashkortostan. The very fact of privatization of the enterprise in 1995 was declared illegal, as was the chain of subsequent transactions.
To see how this financial scandal affected the Russian stock market, watch the video:
III. Questions from shareholders of PJSOC Bashneft regarding accounting for rights to shares and transactions with shares
Question
Where can I buy (sell) shares of PJSOC Bashneft?
Answer
Shares of PJSOC Bashneft can be purchased from their owner. The purchase can be made on the basis of a purchase and sale agreement drawn up in accordance with current legislation, with subsequent re-registration of ownership rights in the depositary (register holder) at the location of the share owner's account.
Currently, the shares of PJSOC Bashneft are in public circulation, that is, they are sold at trading on stock exchanges. To buy (sell) shares on the stock exchange, you can contact a company that provides brokerage services (for example, a bank).
Question
Why, when purchasing shares of PJSOC Bashneft during their public offering, did I not receive them in my hands?
Answer
The public joint stock company “Joint Oil Company” has issued ordinary shares and preferred shares of type “A”, which are registered securities. In accordance with Article 16 of the Federal Law “On the Securities Market”, registered securities are issued only in book-entry form. Shareholders of PJSOC Bashneft are the owners of securities issued in book-entry form.
Question
What document confirms ownership of shares of PJSOC Bashneft?
Answer
Confirmation of ownership of the shares of PJSOC Bashneft acquired by the shareholder is:
· an extract from the register of shareholders of the Company, which can be obtained directly from the registrar of PJSOC Bashneft if the accounting of the shares of PJSOC Bashneft owned by the shareholder is maintained in the register maintenance system, LLC "Reestr-RN" at the address: 109028, Moscow, Podkopaevsky lane, 2/6, telephone - (495) 411-79-11, address of the Ufa branch of LLC "Reestr-RN": 450077, Ufa, st. M. Karima, 16, telephone.
· an extract from the depositary account of the depository with which the Company shareholder has entered into a depository agreement, if the rights to the shares of PJSOC Bashneft owned by the shareholder are recorded in the depository of the bank that acts in the register of shareholders as the nominal holder of the shareholder's shares.
Question
How can a shareholder find out how many shares of PJSOC Bashneft he owns?
Answer
Up-to-date information on the number of shares of PJSOC Bashneft owned by a shareholder can be obtained:
By requesting an extract from the register of shareholders of the Company directly from the registrar of PJSOC Bashneft - LLC Reestr-RN, if the accounting of the shares of PJSOC Bashneft owned by the shareholder is maintained in the register maintenance system.
By requesting an extract from the depository account of the depository with which the shareholder has a depository agreement (for shareholders whose shares are under depository service).
