#8 - JRL 7276
Analysts Cast Doubt on Chevron-Yukos Deal
August 4, 2003
By Geoffrey T. Smith
MOSCOW (Dow Jones)--Analysts Monday poured cold water on the prospect that ChevronTexaco Inc. (CVX) will take a minority stake in Russia's largest oil company Yukos (R.YUK), saying that such a deal would be fraught with difficulties.
The analysts' comments came after London's Sunday Times reported that Chevron had approached Yukos with a proposal to buy a 25% stake. The newspaper said Chevron's offer had been triggered by the possibility that Yukos' plan to take over its smaller rival, OAO Sibirskaya Neftyanaya Kompaniya (R.SBN), or Sibneft, was "looking shaky."
A recent spate of actions by law enforcement agencies against Yukos shareholders and executives has prompted speculation that the merger with Sibneftmay not happen.
Yukos and ChevronTexaco officials declined to comment.
For Chevron, a stake in Yukos would address two of its most pressing strategic problems - falling output and difficulties in replenishing reserves. Yukos' output is still growing at nearly 20% this year, while last year it added three times as many barrels of reserves as it produced.
The Sunday Times said that Chevron may pay just over $6 billion for a 25% stake, a valuation that would exclude Sibneft, according to Aton Capital Chief Strategist Steven Dashevsky. If the Sibneft merger does go through, he added, Chevron would face dilution to 18% and lose any blocking minority rights almost immediately, if the merger does happen.
Erik Wigertz, co-head of research at United Financial Group in Moscow, noted that even a 25% stake would be less than ideal for Chevron.
"Not many oil companies would be happy with 25%," he said. "A stake of 25% gives you some protection, but no control."
Officials at Yukos and Sibneft insist the Sibneft deal is still on track. There is also a $1 billion breakup fee involved in the merger agreement that will act as a strong deterrent to any second thoughts on their part.
Investment bankers active in Russia's oil sector say international oil majors routinely talk to most large Russian oil companies in part as a way of maintaining good relations. These bankers point out, however, that the western companies are generally more keen than the Russians to strike deals.
That indicates that the leak to the Sunday Times may be an attempt by Chevron and its advisers to put pressure on Yukos to rethink its commitment to Sibneft. Leaks to U.K. Sunday newspapers are also a common way for companies to test the market's support for new or revived merger ideas.
However, UFG's Wigertz said there's "no reason" to think Yukos will pull out of the Sibneft takeover, pointing to a string of announcements in recent weeks relating to the deal.
Yukos has already announced the terms of a closed subscription share issue through which it will acquire the controlling interest in Sibneft, as well as the terms of a related public share buyback, which begins Wednesday.
However, there are still some obstacles to the Sibneft deal. The Ministry for Antimonopolistic Practices has still not given its blessing and is unlikely to do so before mid-August, officials say.
Equally, question marks still hang over the final element of the Yukos-Sibneft deal, a bond to be issued by Yukos to give the combined company a net debt of up to $5 billion.
The newspaper Vedomosti reported Monday that the company was preparing to take a syndicated loan of "no less than $1 billion" from international banks instead of issuing the bond.
Yields for all Russian international debt have increased following Yukos' spat with the prosecutors, which has raised wholesale perceptions of Russian country risk, but which has made a debut issue for Yukos particularly difficult. Analysts say a bond issue in the current climate would be far more expensive than when the plan was originally announced in April.
Yukos' Chief Financial Officer Bruce Misamore has said that Yukos doesn't "need to complete a bond financing as such in order for the merger...to be completed."
However, he stressed Monday that the company is still keeping its options open. He agreed that a syndicated loan was one option Yukos was considering as it aimed to align its capital structure with that of Sibneft before the merger's completion.
Two weeks ago, Sibneft's board approved an extraordinary dividend payout of $1 billion for the first half of 2003, a move that also helped the two companies closer to their net debt target and reduced the amount that Yukos will need to borrow in its own name.
Around 1115 GMT Monday Yukos shares were changing hands at $11.82 in Moscow, up 2.3%.
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