OAO Rosneft, the state-controlled giant built by Vladimir Putin’s long-time associate, Igor Sechin, can’t be sure of being the country’s most valuable oil company anymore.
OAO Lukoil, run by billionaire executives Vagit Alekperov and Leonid Fedun, had a bigger market value yesterday for the first time since 2006.
Although Rosneft has now edged back ahead — $34.5 billion versus $33.7 billion — the near parity is striking given Rosneft produces more than twice as much oil and gas.
Rosneft’s trouble is debt: Sechin, who served Putin as a deputy prime minister, borrowed to finance the $55 billion takeover of competitor TNK-BP in 2013.
While the company now pumps about 5% of the world’s crude, more than 4 million barrels a day, the crash in prices mixed with sanctions that limit its ability to refinance, has investors worried.
“Unlike Lukoil, Rosneft has over-indulged in borrowing, growing mostly by swallowing competitors,” Oleg Popov, a money manager at April Capital Asset Management in Moscow, said by phone.
“Given the sanctions, Rosneft’s debt is an anchor dragging the company down.”
Lukoil had about $10 billion of net debt as of Sept. 30, while Rosneft had $45 billion, making it more indebted relative to earnings than any large oil producer apart from Brazil’s Petroleo Brasileiro SA.
While Rosneft rose 1.2% to 229.35 rubles in Moscow today, its shares have dropped 6.8% over the last year. Lukoil has gained 25% in the same period
“The market is not an indicator since long ago,” Rosneft spokesman Mikhail Leontyev said by phone. “The company is under the toughest political pressure, and in fact it isn’t clear for what, and speculators are exploiting this factor.”
Rosneft’s fair value is at least $150 billion if its assets are valued based on deals recently signed with strategic partners, Leontyev said.
In November, Rosneft agreed to sell 10% of Russia’s second-largest oil project in East Siberia to China National Petroleum Corp.
Russia, which owns 69.5% of Rosneft, had its foreign-currency credit rating cut to junk by Standard & Poor’s on Monday for first time in a decade. Its gross domestic product may shrink 4% in 2015, according to economists polled for a January 29 Bloomberg survey.
That sovereign risk may feed through to Rosneft.
Rosneft is among companies likely to be downgraded by S&P in the wake of last week’s decision. Its “standalone credit profile isn’t high,” S&P analyst Alexander Griaznov said this week.
Some of Russia’s private firms, including Lukoil, may maintain a higher rating, he said.