Rosneft 2Q revenues up by a third to $19bn, still in the race for Bashneft privatisation

By bne IntelliNews August 16, 2016

Rosneft reported revenues of RUB1,220bn ($18.7bn) for the second quarter of 2016, up by a third y/y and slightly ahead of analysts’ forecasts.

In other news the company remains in the running to compete in the upcoming Bashneft privatisation, despite President Vladimir Putin explicitly saying the company was not allowed to compete.

And the board of directors cut their pay by 75% for the first half of 2016, in an attempt to show the proper spirit in the atmosphere of growing austerity amongst public companies. The total paid to the board was RUB693.4mn ($10.85mn) in the first half of this year.

The accounts only give figures for the whole board and do not break the sums down into the remuneration for individual members of the board, however, previously the company admitted that CEO Igor Sechin had received a $50mn package including bonuses in 2015, which the company said also included a bonus held over from 2014.

The company’s net income of RUB89bn exceeded forecasts, driven by the recovery in oil prices, up by $11.5 a barrel in the period. Oil prices were trading at $48 on August 15, their highest level in two months.

The company’s EBITDA of RUB320bn ($5.3bn) was down by 15% y/y, but up 43% q/q, which includes the effect from an extra $400mn of prepayments: the depreciation of the ruble effectively lowered the revenue recognised in the income statement for oil supplied as a prepayment settlement. Rosneft does not revalue its prepayments, so the latter does not affect the company's profit and loss.

Reported free cash flow (FCF) was close to zero (RUB-6bn) but RUB61bn when adjusted for the effect of prepayments and interest expenses from the first quarter of 2016. Net debt totalled $29.2bn, which is 1% lower than the $29.4bn at the end of the first quarter of 2016, reports Aton.

Taking out these affects and VTB Capital estimated that the EBITDA, based on the P&L data, for the second quarter of 2016 was $4.9bn, which is up 52% q/q and down 24% y/y.

“Rosneft's net income came at around $1.4bn in the second quarter of 2016. Assuming Rosneft pays 25% of IFRS net income this year as dividends, that would translate into a RUB 2.5/share dividend for the first half of 2016, implying a quite modest annualised dividend yield of 1.5%. We estimate that the stock might deliver a dividend of RUB 6.4/share for the whole year, or a 2% annualised dividend yield,” VTBC said in a note.

Rosneft has continued to underinvest compared with its guidance of 30% y/y ruble capex growth in 2016, reports VTBC. In the second quarter of 2016, ruble capex increased just 9% y/y (or 14% y/y in the first half of 2016).

Nevertheless, unusually, the increase in working capital did not allow Rosneft to generate positive free cash flow (FCF), which was marginally negative. However, analysts says that Rosneft’s FCF should exceed $2bn in the second quarter of 2016.

Bashneft saga continues

Putin attempted to put an end to uncertainty over who can participate in the upcoming privatisation of oil company Bashneft by explicitly banning the state-controlled oil giant Rosneft from participating. However, remarkably Rosneft CEO Igor Sechin said he didn't see the order and intends to go ahead with the company’s bid.

All Russian state companies and banks were barred from the privatisation programme that is supposed to raise RUB1 trillion for the budget this year, but that didn't stop Rosneft from throwing its hat into the ring for Bashneft.

Russia's Ministry of Economic Development has also attempted to bring some order to the upcoming privatisation of Bashneft and laid out a list of rules on who can compete in the bidding. It has proposed eight rules that, if adopted, only two Russian companies would be eligible to compete, but Rosneft would meet all the criteria, with privately owned Lukoil as the other contender.

Minister for Economic Development Aleksey Ulyukayev said on August 15 that to exclude Rosneft from the race would require a special decree from the government, reports VTBC.

Russia’s newspapers reported in August that there were nine potential candidates for the Bashneft privatization, as Ulyukayev’s rules have not yet been adopted. The shortlist might to be drawn up in September. The value of the stake to be privatised was preliminarily estimated by EY, the official independent appraiser, at RUB297-315bn ($4.65bn-$4.93bn).


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