The company extinguishes 12% of shares for 400 billion rubles and begins boevachchk.
LUKoil decided to give a gift to shareholders, while announcing the redemption of most of the treasury stock and the launch of a new buyback program with a volume of up to $ 3 billion until 2022. Until now, LUKOIL has kept the treasury package as an untapped reserve for hard times or major acquisitions. However, after Bashneft moved to Rosneft, the company did not find any options for new major deals and started refunding money to its owners.
The Board of Directors of LUKOIL on January 12 approved the repayment during the year of 100 million treasury shares (about 11.8% of the total volume of securities), the company’s CEO Vagit Alekperov said. The remaining 40 million shares will be sent to the key management motivation program. According to Mr. Alekperov, after the repayment of treasury shares his own stake in the company will be about 30% (now – 24.8%), Vice President Leonid Fedun will have slightly more than 10% (now – 9.8%). Other large shareholders of LUKOIL are the structures of IFD-Capital (about 8%) and Lukoil Investment Cyprus, on whose balance is the treasury package. Redemption of 100 million shares will lead to a free float of the company up to 56% from 49%, according to a review by VTB Capital. After these announcements, LUKOIL quotes rose by 6%, the company’s capitalization reached 3.32 trillion rubles.
The treasury package appeared in LUKOIL in 2010, when the American ConocoPhillips, which owned 20% of the shares, came out of its capital. Then, LUKOIL bought out 7.6% of shares from Conoco for $ 3.4 billion and got an option to purchase the remaining shares, but sold it only partially (about 5%). Gradually, the Russian company increased the treasury package (to 16.2% by September 2015) through redemption from the market. Minority demanded to pay off the papers, but LUKOIL refused for a long time, keeping the package as a financial pillow and talking about SPO or using securities in large transactions. For example, as Vagit Alekperov told Kommersant, the option of using a treasury package to buy a stake in Bashneft was discussed.
Simultaneously with the repayment of the package, LUKOIL announced a new buyback, which is going to spend $ 2-3 billion over five years. The previous program for $ 2.5 billion was launched in June 2012 for the period until mid-2015. The repurchase, according to Alexander Matytsin, LUKOIL’s vice-president for finance, can begin at any moment, he does not require additional corporate decisions, but so far no money for this has been put into the budget. In the future, repurchased own shares can also be repaid.
Ekaterina Rodina of VTB Capital notes that LUKOIL also bought shares from the market before the announced buyback program, but now the process has been formalized in a specific program with the announced parameters. “Many companies have similar mechanisms in their instruments, will support the growth of quotations,” she recalls, adding that LUKoil does not necessarily choose the entire volume. For example, NOVATEK, claiming a buyback of $ 600 million back in June 2012, has not yet exhausted the volume of the program.
Both buyback and repayment of the treasury package are a way of repaying funds to shareholders instead of spending them on capital investments or acquisitions. LUKOIL could not use the period of low oil prices to buy ready-made assets (in particular, Bashneft), and the company’s management repeatedly noted that it is now impossible to obtain promising areas in Russia, including on the shelf. On the market, LUKoil’s current decision is perceived so that the company is not going to make major purchases, says an analyst at Western investment bank. Vagit Alekperov in an interview with Kommersant in December 2017 recognized that “there are fewer and fewer companies in Russia, and the assets that remain with them are getting worse and worse.”
Author: Olga Mordyushenko
Article in Russian: Kommersant