Unipetrol ‘ready’ to increase Česká rafinérská stake

Shareholders can’t sell their stakes to third parties at substantial premiums over the fair value; Eni’s stake is worth some $400 mln

Unipetrol wants to up its stake in Česká rafinérská — but is it ready to outbid Gazprom? | na serveru Lidovky.cz | aktuální zprávy Unipetrol wants to up its stake in Česká rafinérská — but is it ready to outbid Gazprom? | foto: © UnipetrolČeská pozice
Unipetrol wants to up its stake in Česká rafinérská — but is it ready to outbid Gazprom?

Czech petrochemicals firm Unipetrol, the majority shareholder in top Czech oil refiner Česká rafinérská, confirmed in its 2010 annual report published Thursday that it is ready to increase its 51.22 stake in the joint venture, if either Eni International or the Shell Overseas Investments are willing to sell their minority stakes.

“Unipetrol is prepared to increase its stake [in Česká rafinérská] if one of the two remaining shareholders decides to exit the company, subject to economically justifiable terms,” said Unipetrol, a Prague-listed company controlled by PKN Orlen, the leading Polish oil refiner and petrol retailer.

As first reported by Czech Position, Eni is negotiating the sale of its 32.445 percent stake to Russian energy giant Gazprom (or its subsidiary GazpromNeft), but current shareholders in the Czech refiner have right of first refusal. Shell Overseas Investments, a subsidiary of the Anglo-Dutch concern Royal Dutch Shell, has a 16.335 percent in Česká rafinérská, which has an annual capacity of 8.8 million tonnes. ‘The biggest risk for Unipetrol is that Gazprom Neft would be willing to pay the premium over our fair value assumption for the stake of $400 million.’

“[Unipetrol said it] would exercise its pre-emptive rights only if the price offered by Gazprom to Eni, which Unipetrol would have to match, is economically justified,” Wood & Co. analyst Jan Tomaník said in a note to clients Friday, calling the news neutral. “In fact, the biggest risk for Unipetrol is that Gazprom Neft would be willing to pay the premium over our fair value assumption for the stake of $400 million. There are clauses in the Česká rafinérská shareholders’ agreements that should protect other shareholders from such a situation.”

Unipetrol abstained from a March 22 Česká rafinérská shareholders meeting that was to discuss the prospective sale of Italian oil and gas company Eni’s stake in the company Gazprom, Russia’s fifth-largest oil producer; Unipetrol spokesman Bořek Konečný said at the time that the company had not received sufficient information to take binding decisions on the matter. Earlier, Unipetrol had said it wanted to have a “detailed discussion” with its fellow shareholders in the joint venture.

In line with legal requirements, an extraordinary shareholders’ meeting must before May 3 — i.e., within six weeks of the cancelled March 22 meeting. If Eni and Gazprom strike a provisional deal, Unipetrol and Shell will have 30 days in which to at least equal the offer and acquire Eni’s stake.

“Holders are restricted to selling their stakes to third parties at substantial premiums over the fair value, which would preclude other shareholders from exercising their pre-emptive rights,” Wood & Co.’s Tomaník said. “Nonetheless, the application of such a general rule might, admittedly, be difficult.”

According to Unipetrol’s annual report, the group’s 2010 financial results improved substantially in comparison to 2009. “The Group posted EBIT of Kč 1.7 billion, net profit of Kč 937 million with revenues of Kč 86 billion (up 28 percent
year on year) in 2010, which means that the profitability improved by approximately Kč 2 billion in 2010.”

Thanks to its $150 million net cash position, Unipetrol would have enough headroom to acquire Eni’s stake on the brokerage’s fair value estimate, Tomaník said, adding, “post-acquisition net debt-to-EBITDA would remain very low, below 0.8x.”

Druzhba, Italo-Russo friendship

Eni, Italy’s biggest oil and natural gas company by volume, and Gazprom, Russia’s natural gas export monopoly, are partners in the planned 900-kilometer South Stream pipeline across the Black Sea to Europe — bypassing transit states such as Ukraine. In 2006, the companies signed a strategic partnership through which they committed to jointly develop project in the entire gas chain: It was in the framework of this partnership that they launched the South Stream project and that Eni entered Russia’s upstream sector.

Česká rafinérská operates the two major oil refineries in the Czech Republic, in Litvínov and in Kralupy nad Vltavou. Oil products refined by the company are distributed in proportion to the shareholders’s stakes. Unipetrol’s Business Unit (BU) Refinery plans and manages crude oil processing at Česká rafinérská. The most important export areas for Unipetrol’s Refining BU were Slovakia, Germany, Austria, Poland and Hungary.

In terms of sourcing, the crude oil markets important for the BU Refinery include Russia, certain other republics of the former Soviet Union, and the countries of the Mediterranean. This situation is due largely to the existence of the Russian-controlled Druzhba (“Friendship”) oil pipeline and the TAL/IKL (Trieste-Ingolstadt-Kralupy-Litvínov) pipelines.

For Unipetrol’s Refining BU, 2010 was marked by continued strategic cooperation with PKN Orlen, as part of which crude oil has been supplied through the Druzhba and TAL-IKL pipelines under long-term contracts since 2006.