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9 Aug, 2007 06:40

Rosneft goes on absorbing YUKOS

Russian oil company Rosneft won yet another auction of the assets of bankrupt firm YUKOS, on Wednesday. It bought the former oil giant's transportation assets for $US 729 MLN, just a notch above the starting price.

The YUKOS name still adorns petrol stations, but the company itself has almost disappeared from  the Russian business landscape. The company declared bankrupt in August 2006 after three years of litigation with authorities over tax arrears, is being auctioned off to pay its creditors.

Nearly all Yukos assets, including production units, refining plants and even its Head Office have been bought by Rosneft, making it one of Russia's largest oil companies, in the process. Rosneft's decision to buy Yukos' transportation assets at Wednesday's auction is logical because it owns so many of the bankrupt firm's former assets already.

This string of acquisitions has brought Rosneft great rewards, but it has brought challenges for the company too. Speaking to RT earlier this week, the President of Rosneft, Sergey Bogdanchikov, outlined the extent of the debt it has inherited from Yukos.

“Along with the YUKOS assets, we acquired their liabilities which have increased Rosneft’s total debt to $US 26 BLN. Although this does not affect our ability to function, we plan by 2010 to reduce our debt as a percentage of total assets to 30%. Then we will be in line with Russian and international standards,” Mr Bogdanchikov promised.

Rosneft says it will generate more profit by tripling capacity at its regional refineries and expanding in China.

Market analysts expect the company to make an additional share placement to raise further capital, but the company will have to prove its credentials in terms of management structure and transparency if it wants to attract more foreign investors than it did in its initial public offering last year.

The former YUKOS assets, which are located all over Russia, make structure and transparency more complicated. But analysts say this issue is not as serious as it might seem.

“You need to have a good management platform that can deal with operations that are geographically dispersed, but Rosneft had that a long time ago. Yukos was a particularly physically integrated anyway, it was assembled in the same way Rosneft has been assembled. So, it is just a question of the quality of the management and the systems that they implement. I think Rosneft has shown it has got a pretty good track record in that area,” assured Tom Adshead, Portfolio Manager of Alfa-Capital Group.

So, although Rosneft may lack cash for now,  the company that rose from the ashes of YUKOS clearly has the ambitions to match its considerable assets.