Tuesday, April 30, 2013

TNK-BP Sale Boosts BP Profit

British Petroleum PLC (BP.LN, $471.00, +$14.25) has reported a tripling of its first-quarter profit relative to last year, thanks to the proceeds from its $27.5b sale of its portion of Russian joint venture TNK-BP. According to the Wall Street Journal, the TNK-BP deal has helped to offset BP's losses from falling oil and gas production, with $12.5b of the British oil giant's $16.86b in first-quarter profit coming from the sale of TNK-BP to Russian oil company OAO Rosneft. As the WSJ reports, "Excluding the TNK sale and other one-off items, BP's profit was $4.22 billion for the quarter ended March 31. That is down 9.4% from a year earlier, but well above the average of $3.25 billion projected by nine analysts polled by Dow Jones Newswires. Even though overall oil and gas production declined, thanks to asset sales, the company benefited from new higher-margin oil projects."

Monday, April 29, 2013

The 0.000007 Percent

Foreign Policy's list of the 500 most powerful people on the planet. Very interesting to see who's listed here, and why.

VTB Announces $3.3b Offering

Russia's second-largest bank, VTB, has announced today that it has found buyers for all of the shares it is offering as part of a $3.3 billion secondary stock offering. Despite slowdown in the Russian economy, the VTB offering comes as a sign that investor interest is still running high in the Russian banking sector, and the share price has fallen enough over the last few years to make VTB an even more attractive investment. The shares will trade on Russia's Micex exchange later this year.

According to DealBook, "The sovereign wealth funds of Norway, Qatar and Azerbaijan were among the investors that agreed to buy shares even before the placement came onto the market." The move by VTB is expected to allow for an expansion of the bank's domestic financing operations. As part of the deal, the Russian government sold options proportional to its overall stake in the bank of 75% to the sovereign wealth funds and other investors.

The development seems to be part of Putin's larger push for a more robust and self-sustaining domestic exchange and banking system in Russia. Putin has insisted that state-owned Russian companies should float on the Micex exchange, rather than on the NYSE or FTSE, in order to boost the Russian economy, and has supported the concept of "patriotic buying" by Russian investors.

Saturday, April 27, 2013

English-Russian Banking Dictionary

I might be the only IU student to ever check out the book "Новый Англо-Русский Банковский и Экономический Словарь" (New English-Russian Banking and Economic Dictionary) from Wells Library, but I'm pretty happy I found Б.Г. Федоров's reference work. The 2001 edition has translations of over 15,000 words and phrases; for now, I've written down 120 of the most common investment banking terms to learn. Studying investment banking in English is hard enough, but trying to express banking terms in Russian adds another dimension altogether. I think I'll start a "Russian Banking Word of the Week" post here on the blog...but for now I've got plenty to study before my flight for Kiev leaves the tarmac on May 29.

Ukraine Seeks Privatization of Gas Pipelines

Ukraine's gas pipelines have been the focus of considerable controversy lately, vis-a-vis the country's quarrel with neighboring Russia over energy contracts and Ukraine's practice of re-selling Russian gas to countries farther to the West. Now, it appears the Ukrainian government is pushing to allow for privatization of pipelines of state-owned gas enterprises, notably Naftogaz. According to news site Ukrainian News, the proposed legal changes would allow the government to alienate fixed assets, shares, and stakes in state-owned enterprises engaging in gas transportation and storage.

According to news sites, the initiative is related to the wider efforts of Ukraine and the EU to diversify energy supply and transport methods, and establish a tripartiate consortium with Ukraine, Russia, and the EU to manage Ukraine's gas transport system. Is this perhaps another step towards Ukraine's integration into the EU?

Friday, April 26, 2013

Trickling Along: ExxonMobil Facing Challenges

Just saw this article on Breaking Views via DealBook and wanted to post the link. Despite my longstanding partiality towards XOM it appears that they are truly facing some serious financial problems, and that the "Exxon premium" and higher EV/EBITDA valuation multiple relative to competitors may be on the way out.

http://www.breakingviews.com/exxon-mobil-running-hard-just-to-stand-still/21082033.article

First IB Pitch Competition

The last few weeks have been exhausting and overwhelming, but also very rewarding. I've gone from not knowing what discounted cash flow or enterprise value were, to presenting my first investment banking pitch earlier today. After four days of hard work, on an average of 3 hours of sleep, and in the midst of a sinus infection, I'm pretty proud of my first pitchbook. Along with two of my fellow Kelley Investment Banking Seminar 2014 classmates, I pitched a two-part leveraged buyout strategy for a small, fictional metal casting company ($30m annual revenue) to a panel of current bankers and IU alumni. More details to come...but if this is what I can expect in my future career then I'm definitely looking forward to it.

Tuesday, April 23, 2013

Flawed Bidding Botches Dell Deal

Dell has captured the headlines in finance recently, and for all the wrong reasons. Last Friday, shares of the stock fell to $13.40--a full $0.25 below the $13.65/share price offered by Michael Dell and Silver Lake, and $0.85/share lower than the buyout price offered by Blackstone. The plummet in price followed the announcement last week that Blackstone had decided to remove its bid to acquire the struggling computer company, and the announcement of an agreement between Dell and investing activist Carl Icahn that placed limits on Icahn's ability to acquire shares.

In the wake of the debacle, DealBook featured an analysis of what went wrong in the bidding process, focusing on the over-reliance by Dell's current board on mechanisms known as "go-shops." A go-shop is a device in buyouts that forces the target company to shop around for competitive offers after an initial bid has been made--essentially undercutting the power of first-movers in the bidding process.

The origin of the go-shop is in private equity, where firms would often team with private management to demand an exclusive bid. According to DealBook, "Boards would agree to this exclusivity but in exchange demand a period of time when alternative bids could be solicited. This way they could be assured that the company was being sold for the highest possible price."

However, often go-shops often lead to hollow and inflated self-perception by targeted companies, and can also limit the bidding process to two bidders at a time. This is exactly what happened with Dell, which first only negotiated with Silver Lake and KKR; then only Silver Lake and TPG; then, when Blackstone called in January, Dell "was left to bid only in the go-shop after it was announced that Michael S. Dell and Silver Lake were offering $13.65 a share to take Dell private."

Now, it appears Dell has no other options, and the walls are only closing in even faster with the recent revelation that the PC industry is shrinking even more rapidly than originally projected. The lesson here is that "when executives from a private equity firm with $51 billion in assets under management comes knocking on your door, you might not want to turn them away." Dell may still be a Fortune 50 company, but beggars can't be choosers.


Rosneft considering joint Iraq venture with XOM

(Photo credit Barents Observer)

I was originally intending to make my first post more of an introduction to the blog and to myself, but this piece of breaking news on the website Seeking Alpha grabbed my attention. According to SA, Igor Sechin, CEO of Russian oil giant Rosneft (ROSN:RM on Russia's Micex exchange, 215.23 rub, -0.85%), is considering a joint venture with ExxonMobil (XOM, 88.44, +0.40%) to exploit oil and gas production in Iraq. XOM has been wanting to reduce its large stake in the West Qurna-1 oil field and has expressed its intent last year to sell its entire 60% stake to focus on oil projects in Kurdistan.

More details are provided by this Reuters article, which states that an Iraqi delegation is to visit Moscow on May 10, and provides the following financial details:

* Rosneft plans to produce 100 bcm of gas a year by 2020

* Rosneft's 2013 capex seen at $20 bln post TNK-BP deal

* Sechin says market capitalisation of Rosneft to reach $120 bln in two-year time

The deal is expected to double Rosneft's share of the Russian gas market by 2020, and seems to be the next step in the oil company's gradual process of expansion. Quoting from Reuters: "Rosneft has been expanding since Sechin, a powerful long-standing ally of Russian President Vladimir Putin, was appointed to head Russia's top oil producer last May. It bought Anglo-Russian oil company TNK-BP from BP and the AAR consortium of Soviet-born tycoons for $55 billion, clinched deals with international majors to tap Russia's Arctic hydrocarbon reserves, and acquired domestic gas producer Itera."

This seems like a very interesting development to keep track of moving forward. I wonder how this will affect the dynamics of the Russian gas and energy market, given Gazprom's current monopoly yet Putin's support of Sechin?