EU seen pleased as Rompetrol stays out of Russian hands

By bne IntelliNews August 28, 2007

Anca Paduraru in Bucharest -

The sale by Dinu Patriciu of a 75% stake in Rompetrol Group to Kazakh state-owned KazMunaiGaz is sure to please European authorities, as it keeps Romania's second largest oil company out of the hands of Russian firms and will help bring more Caspian oil and gas to Europe.

"The parties to this contract were moved by overlapping interests: Kazakhstan is a proud nation, which needed to find a gateway to Europe for its huge natural resources, and I am ready to offer it this opportunity, while I get the means to turn my company into the 10th largest European company," Patriciu told local TV on Monday, August 27.

Though Patriciu, who will remain as CEO of the Dutch-based company, refused to disclose details of the deal, he provided tantalizing hints of how his firm ended up in Kazakh hands. On price, Patriciu said the enterprise value of Rompetrol - the measure of the value of a company's business rather than the value of the company itself - stands at $3.6bn, which would imply that KazMunaiGaz paid about $2.7bn in cash for its 75% stake. And seven months ago, he said nine oil companies and investment funds entered a private bidding process that was organized by the investment bank Morgan Stanley. Quoting Sun Tzu's The Art of War, Patriciu said, "a war is won by those knowing how to defend themselves, not by those knowing how to attack." Analysts speculated that some Russian organisations may have been behind some of those investment funds.

"I had better financial offers from some investment funds. However, I was not interested in providing Rompetrol with liquid money but liquid oil, and build the company as an alternative to Russia's Gazprom," said Patriciu.

Indeed, Gazprom has reportedly been wooing Rompetrol since October last year. However, the commentator Dan Constantin, writing in the Jurnalul daily, argued that regardless of Patriciu's intentions, a Rompetrol-Gazprom deal would have stood little chance of being approved by the European Commission. As an EU member state, Romania now needs this approval for the deal, though the Commission, which is desperately trying to diversify Europe's heavy reliance on Russian energy, will no doubt happily give the green light.

Former economy minister and Conservative Party Senator Codrut Seres said the deal turned "Romania into a major player on the route of the Caspian Sea oil to EU nations."

And another former economy minister, Daniel Daianu, said the deal built, "an interesting synergy between Rompetrol's refining units in Romania and its European distribution network, and Kazakhstan's exceptional oil reserves." At the same time, he pointed out that Kazakh President Nursultan Nazarbayev had privileged access in both Washington and Brussels, as the West has made securing Caspian energy resources a priority of their foreign policies.

Fitch Ratings also took a positive view on the deal, announcing on Tuesday, August 28 that it had placed the group on 'Rating Watch Positive'. Fitch said it expects that, "the arrival of a higher rated strategic investor will lead to some financial restructuring of Rompetrol to improve the group's weak liquidity position and its credit ratios, which have been continuing concerns in Rompetrol's rating. In addition, the [deal] is likely to strengthen Rompetrol's business profile, for example through secured long-term access to crude oil supplies from Kazakhstan."

The two groups said in a statement that the deal doubles KazMunaiGaz's refining capacity and gives it access to 630 petrol stations held by Rompetrol across seven European countries, from Georgia to France. Rompetrol is the majority shareholder of the Romanian-listed entity Rompetrol Rafinare (RRC). Besides domestic refining and marketing operations through RRC and the Vega refinery, the Rompetrol group's major assets includes retail and wholesale operations in Albania, Bulgaria, Georgia, Republic of Moldova, Ukraine, France and Spain; and domestic and offshore upstream operations through its specialized entity Rompetrol Well Services.

Fitch Ratings also welcomed the deal, putting the group's rating on positive watch. "The arrival of a higher rated strategic investor will lead to some financial restructuring of Rompetrol to improve the group's weak liquidity position and its credit ratios, which have been continuing concerns. In addition, the arrival of KazMunaiGaz is likely to strengthen Rompetrol's business profile, for example through secured long-term access to crude oil supplies from Kazakhstan," it said.

Trumped

For Patriciu, a colourful and slightly shady character, the deal helps him climb to first place in Romania's list of wealthiest people and perhaps even a candidate for the Forbes list. He said would be thrilled to promote a TV show similar to Donald Trump's "The Apprentice."

In May 2005, prosecutors arrested and detained Patriciu for 24 hours, but judges freed the businessman because of a lack of evidence. He was indicted on seven different counts, along some of his business partners, with the list of their alleged economic crimes ranging from the misappropriation of funds and money laundering to embezzlement, tax evasion and fraud, during the privatization of Rompetrol. The investigation is still ongoing, spans business deals between 1998 and 2005, and relates to money that Rompetrol's Petromidia refinery received from Libya for a debt in the 1980s when the refinery was still state-owned. Prosecutors claim the state is owed more than $30m, but Rompetrol says it implicitly bought the debt when it acquired the company.

The deal with KazMunaiGaz is seen as helping to insulate Patriciu from further criminal proceedings. However, true to form in this still highly corrupt country, there is now talk of dodgy dealing in Rompetrol shares since the deal was announced. Rompetrol informed the Bucharest Stock Exchange about the sale to the Kazakhs at 1200 local time on Monday, along with the international media and a select pool of local journalists. However, the BSE only stopped trading in the company's shares at 1323, providing a window for those who had access to the information to take part in the surge in Rompetrol shares. Rompetrol Well Services closed up 13.1% on the day, while Rompetrol Rafinare ended up 14.3%.

As well as continuing to run Rompetrol, Patriciu says he plans to set up a regional development fund for joint ventures in both Romania and Moldova, and will continue to invest in the local media.


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EU seen pleased as Rompetrol stays out of Russian hands

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