Published 26-09-2012, 04:28
Deputy Prime Minister Arkady Dvorkovich stated that a 3% stake in Transneft could be privatized in the near term. According to Dvorkovich, the government has been impressed by the successful privatization of a 7.6% stake in Sberbank that was recently completed and intends to continue developing their privatization plans.As a result, Dvorkovich sees Transneft as a next candidate for privatization. However according to Russian law only a 3% stake in the company could be privatized as Transneft is a strategic company and the states in the company's capital should not be reduced to less than 75% plus 1 share. The state's currently owns 78% of Transneft charter capital.
As no details have been provided it is still unclear how the state plans to reduce its stake in the company. Only Transneft preferred shares are currently traded but the state does not own any preferred shares, only common shares as a result of common shares wouldbe privatized. We think that the placement of a 3% stake would result in an unattractively low free float. In our view, the company should privatize no less than 25% of common shares to create liquidity in the stock.
At the same time, in our view, the news may positively affect preferred shares as they would cease being perceived as quasi bonds as well as the stocks with a certain discount to fair value of common shares, which according to our DCF model is very high. However, we estimate the company would need to pay 25% of IFRS net income for dividends to be attractively valued, which we think is unlikely.
Metropol
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