Vertically Integrated Oil Companies: A Different Dimension
Last Wednesday the Ukrnafta joint-stock company failed to hold a shareholders’ meeting which was to have decided to float some additional shares: only 0.21% instead of the required 60% showed up. Although canceling a meeting is not a new thing here, the public and the financial market showed a mixed, to put it mildly, and a condemning, to put it bluntly, reaction to this incident in Ukraine’s largest oil-producing company. This time the market immediately showed a positive response, owing to, among other things, the President of Ukraine’s recent edict on the establishment of a vertically integrated company based on Naftohaz Ukrayiny, not Ukrnafta. Ukrnafta shares’ quotations at the First Stock Exchange System (PFTS) got back to 71 hryvnias a share.
Let us recall he course of events that nearly upset the Ukrainian stock market and, in the opinion of The Day’s experts, even contributed to the breakup of the parliamentary majority. President Leonid Kuchma decreed on July 16 to establish a vertically integrated oil company (VIOC) by transferring state-owned stakes in Ukrtatnafta (43.054%) and Halychyna (25%) businesses to the authorized capital of Ukrnafta, so that the company retain its status-quo. This also entailed an additional emission of stock, with the state holding the controlling shares (50% plus one share).
Ukrnafta’s authorized capital is only UAH 13.5 million, while the company’s market capitalization (at PFTS quotations as of September 2) costs UAH 3,836.7 million. In these conditions, the above-mentioned reorganization could affect the interests of minority shareholders, perhaps including some people’s deputies. The stock exchange immediately reacted to this threat by a sharp drop of Ukranafta shares. Besides, Ukrnafta’s controlling shares (50% + one share) now belong to Naftohaz Ukrayiny, while 42% of the company’s stock is controlled by a Privat-Bank group which also in fact owns the Naftokhimik Prykrpttia oil refinery. The impression was that Privat-Bank would put up a fight at the Ukrnafta meeting.
Yet, Naftohaz boss Yury Boiko managed to appease all. He had announced shortly before that there would be neither the meeting nor the additional emission. He said Pres. Kuchma had made a decision to this effect. On the same day, Prime Minister Viktor Yanukovych (who is, by all accounts, most of all interested in the restoration of a parliamentary majority) also gave an ideological explanation to why the VIOC should be formed as part of Naftohaz Ukrayiny. According to the premier, the establishment of a vertically integrated oil company in Ukraine will form a production chain from extraction to refining and retail sales of oil products. The premier is sure this is the only way to regulate prices for fuels and lubricants in this country. “If someone chooses to thwart this decision, such attempts will be detrimental to Ukrainian society,” the prime minister emphasized.
Trying to pacify shareholders, Mr. Boiko also announced that the Ukrtatnafta and Halychyna shares offered by the State Property Fund would remain on Naftohaz Ukrayiny’s balance sheet. Mr. Boiko forecast that, owing to the decision to cancel the additional emission of shares, Ukrnafta’s shares would restore and begin to increase their rate. A shrewd guess indeed. He also maintained that if an additional emission were to be held, this should be done at the market price of shares. Mr. Boiko also predicted that no differences would arise between Naftohaz Ukrayiny and the Privat group, which controls 42% of Ukrnafta’s shares, after it was decided to establish a VIOC based on Naftohaz Ukrayiny rather than on Ukrnafta, as was planned before. “When pursuing a business policy, we always take into account the opinion of private shareholders. We have had practically no differences with Ukrnafta shareholders lately. I don’t think there will be any differences this time, either, when we form a business model of a new VIOC,” Mr. Boiko said. He was not mistaken.
According to The Day’s information, Ukrnafta bosses, including board of directors chairman Ihor Palytsia, have taken a rational approach to the changed situation. The press service told The Day that it is not so important on the basis of which company — Ukrnafta or Naftohaz Ukrayiny — the VIOC will be established. The crucial point is that Ukraine is really forming a company like this. The press center is convinced that Ukrnafta will be highly cooperative in his matter because in any case it is this country’s largest oil-producing facility.
