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Many people have lamented the fact that Russian state-owned oil company has chosen to do its huge, $10 billion-plus IPO in London, rather than in New York. The decision has been held out as an object lesson in how U.S. listing standards and regulations are deterring foreign companies from becoming NYSE and NASDAQ companies. But as Joanna Chung reports in the Financial Times, there's reason to believe this may not be our loss and London's gain.
Rosneft yesterday began selling itself to investors, warning of "material weaknesses" in its internal controls, a Kremlin-
controlled board that might not always act in the interests of minority shareholders and possible legal liabilities of at least $14.7bn (£8bn).The state-owned Russian oil giant published the preliminary prospectus for its float in London and Moscow next month. It hopes to raise $10bn-$11.7bn, making it one of the world's largest initial public offerings and valuing the company at up to $80bn.
As with any such document, Rosneft has been obliged to list all the conceivable risk factors to any investment.
Over 25 pages, the potential pitfalls are set out. As expected, the central threat to any investment lies in the legal challenges surrounding Rosneft's contentious acquisition of the former assets of Yukos, the oil company once owned by the now imprisoned oligarch Mikhail Khordokhovsky. Rosneft acquired Yuganskneftegaz, the main asset, in an opaque and forced auction.
The prospectus says that Rosneft is a defendant or respondent in four cases brought by Yukos or its shareholders that could result in damages of at least $14.7bn. Rosneft is "actively contesting" the claims and suing Yukos in Moscow for more than $17bn.
It adds: "If certain shareholders of Yukos are successful in obtaining an arbitral award against the Russian Federation, those shareholders may seek to enforce that award against Rosneft which may expose Rosneft to substantial liability."
Rosneft's corporate governance might also prove offputting. The prospectus says the Russian government indirectly owns 100 per cent of Rosneft and that six members of the nine-member board are officials in the government. This means Rosneft may "engage in business practices that do not maximise shareholder value" and cause it to "take actions that may not coincide with the interests of minority share-holders".
Its accounting systems may not be as sophisticated as that of companies with a longer history of compliance with US accounting rules and "Rosneft's independent auditor has identified certain material weaknesses in Rosneft's internal controls".
Rosneft might also have trouble financing its capital expenditures. It is relatively highly leveraged and must observe certain financial and other restrictive covenants under the terms of its indebtedness. The document notes that "crime and corruption could create a difficult business climate in Russia". . . .
Posted by dan at 09:43 AM
In Washington, there are literally hundreds of experts eager to be quoted in major newspapers about fiscal policy. So you have to wonder how it could be that one of the only ones Caroline Daniel of the Financial Times could reach in her article on proposals for a line-item veto was the sleazy lobbyist Grover Norquist.
In an effort to re-establish his credentials for fiscal discipline with conservative Republicans, President George W. Bush will urge the Senate in a speech today to pass the line-item veto, giving him more power to cut "wasteful spending".The line-item veto would allow the president to strike out certain parts of legislation without losing the entire bill.
The speech forms part of an increasingly aggressive effort by the White House to woo back conservatives, who have become disaffected by the expansion of government spending during his two terms. Last Thursday the House passed a version of the line-item veto by 247-172, with 212 Republicans voting in favour.
Grover Norquist, head of Americans for Tax Reform, said: "Those conservatives who said the government is spending too much, knock it off, are now being heard. I have not seen Congress and the White Housework together so competently and diligently as they did on passing the line-item veto."
Last week the White House hosted a conference call, led by Karl Rove, the president's closest political strategist, and Rob Portman, director of the Office of Management and Budget. "It included hundreds of conservative activists, state legislators," said Mr Norquist. "They worked with outside groups on the bill. The level of focus was greater."
Over the past year Congress has passed 14,012 earmarks - funding for pet projects inserted into large spending bills - worth about $29bn (£16bn, €23bn). At the weekend Mr Bush cited the growth in earmarks as justifying the need for a line-item veto, which he said was a "smarter way to handle taxpayer dollars", permitting removal of some of these earmarks without vetoing a whole bill. . . .
The administration has had some recent successes in controlling spending, such as the supplemental spending bill that it had threatened to veto.
"Their veto threat was clear. It wasn't about saying that White House advisers had promised to talk to Laura Bush to talk to the president about a veto," said Michael Franc, vice-president at the Heritage Foundation.
Mr Norquist said the House vote underlined the fact that spending restraint had become a priority.
Posted by dan at 09:38 AM
Did GM underestimate how much its employees value their jobs? Apparently, yes. Some 47,600 unionized workers at GM and Delphi accepted buy-out offers, more than the companies expected, and more than the companies had targeted. WHich leads to the conclusion that GM could have achieved its desired goal of reducing the workforce dramatically by offering less generous buyouts. Once again, GM has misjudged prices in the markets in which it competes.
Posted by dan at 09:33 AM
Progress of a sort. A woman is named CEO of Kraft (market cap: $51 billion; annual revenues: $34 billion; employees: 94,000) and it's inside-page news.
Posted by dan at 09:25 AM
The New York Times reports that NBC cut prices for prime-time advertising.
NBC has become the third broadcast television network to complete selling commercial time to advertisers before the start of the 2006-7 season.NBC, part of General Electric, sold about $1.9 billion in commercial time in what is called the upfront market, which takes place ahead of the fall season. Last year, in the upfront market before the 2005-6 season, NBC also sold about $1.9 billion.
NBC lowered the rate that advertisers pay to reach each 1,000 viewers, known as cpm's, by 5 percent, reflecting its recent ratings struggles.
Posted by dan at 09:23 AM
Two nuggets from the Financial Times highlight the way the global commodities boom is allowing developing economies to deleverage.
First, Joanna Chung and Neil Buckley report on Russia:
Russia on Thursday agreed to repay its entire $21.3bn debt to the Paris Club of creditor nations by the end of August, plus a $1bn early repayment premium.The agreement is an important political step for Russia ahead of the summit of the Group of Eight industrial nations next month, and highlights how its finances have been transformed in recent years thanks to high energy prices. The reduction of its debt stock also raises the possibility of further credit rating upgrades, analysts said. A preliminary repayment deal with the Paris Club was reached last week but Alexei Kudrin, Russia’s finance minister, had been engaged in a dispute with Mikhail Fradkov, the Russian prime minister, over the size of the premium needed to complete the deal.
Mr Kudrin said on Thursday the government had approved the proposal and Russia would pay a $700m premium to Germany, Moscow’s largest creditor, while $300m would go to Britain, France and the Netherlands.
“All creditor nations of the Paris Club have confirmed their participation in the scheme for early debt repayment,” Mr Kudrin was quoted as saying by the RIA-Novosti news agency. He said the deal was expected to be formally signed by the Paris Club in the near future, allowing the debt to be repaid before August.
Mr Kudrin said this week that the deal would save Russia an estimated $7.7bn in debt servicing costs.
And a small item on Mexico:
"Mexico will use record high foreign reserves to prepay $7bn in debt, the finance ministry said yesterday.Alonso Garcia, deputy finance minister, said the payment to the World Bank and the Inter-American Development Bank would save Mexico about 600 m pesos (52 m) in interest payments."
Posted by dan at 03:59 PM
Kohzem Merchant reports in the Financial Times on the latest example of an Indian company buying a western brand:
Tata Coffee, the largest coffee plantation company in India, has acquired Eight O'Clock Coffee, a popular US brand, for $220m, in a move that accelerates the Bangalore-based company's move from the commodity end of the industry to higher-margin brands.EOC becomes the latest foreign asset to fall into the hands of Tata, the acquisitive Mumbai-based steel to technology-services group that has made globalisation a strategic objective.
Tata Coffee said EOC, with net sales of $109m for 2005 and the third largest coffee brand by volume behind Folgers and Maxwell House, would be an entry ticket into the $21bn US coffee market.
Posted by dan at 03:32 PM