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BP has made the best of a difficult situation in Russia. The U.K. energy major swapped its 50-per-cent stake in joint venture TNK-BP for a combination of cash and 20 per cent of Russian energy giant Rosneft. Now it faces a new challenge: avoid becoming just another trampled Russian minority shareholder. BP could start by using its new seats on Rosneft's board to push for fair treatment of TNK-BP's minority investors.
The share price of Moscow-listed TNK-BP Holding fell by nearly a third in the week after Rosneft completed the $55-billion (U.S.) purchase of its unlisted parent from BP and a gaggle of Russian oligarchs.
Rosneft now holds 95 per cent of the listed group, but Igor Sechin, Rosneft's boss, has dismissed the idea of buying out the rest. The selloff accelerated after Rosneft's board of directors approved a plan to borrow up to $9.7-billion from the acquired company, part of it from the listed entity, which houses almost all of the acquired company's producing assets.
Rosneft says such cash-pulling is common practice, already used elsewhere inside the state-controlled energy giant. Not all of the approved loans may end up getting extended; those that do would be on commercial terms. Still, BlackRock, Lazard and other minority shareholders in TNK-BP Holding must be feeling antsy.
That's because the loans may replace dividends as the way the majority owner extracts the listed company's ample cash flows. The choice makes little difference to Rosneft, but would leave the minority holders out in the cold.
Analysts at Sberbank think Rosneft may be obliged to seek approval from TNK-BP minorities before loans of this scale are approved. But rough treatment of smaller shareholders is commonplace in Russia. Rosneft might try to find some way around the requirement.
BP has a stake in what happens next. The mere appearance that Rosneft is sidelining TNK-BP minorities would add to concerns that the U.K. oil major – itself now a minority investor in a strategically important company – has just swapped one difficult Russian partner for another. BP should use its new influence to encourage Rosneft to give TNK-BP Holding minorities their say, or to buy out the small free float.