Oil giant Rosneft sets its sights on another competitor

(Forbes) – For some, Rosneft is the Death Star of Russia and its CEO, Igor Sechin, is Darth Vader. Every fight it picks, it wins. So when the publicly traded commodity conglomerate Alrosa comes under investigation by a competition watchdog, it is no shocker that the company that led to the investigation is Sechin’s Rosneft.  This should not be taken lightly by Alrosa’s newest foreign shareholders that bought in during a 2016 government share offering.

Russia’s Anti-Monopoly Service (FAS) is investigating the sale of Alrosa natural gas assets following a complaint from would-be buyer, Rosneft, Reuters reported on Wednesday. An auction is scheduled for February 19.

Rosneft is no stranger to Alrosa, a majority state-owned enterprise known as a diamond miner.  Rosneft first got into the Alrosa gas business when it tried to acquire two Alrosa gas companies and other assets back in 2013 for $1.3 billion. That deal fell apart because of a price dispute. Alrosa was set to try again next month, with Novatek, Russia’s largest privately owned gas producer, expressing interest.

Only two weeks ago, Rosneft said that it had no interest in bidding for Alrosa’s gas assets.  Then on Dec. 29, Rosneft apparently changed its mind and said it wants it. Officials of the company told Reuters that it was still not happy with the conditions of the bid, and within two weeks from the time that article ran, FAS decided to investigate.

Both Novatek and Alrosa shares rose just 0.2% on Thursday in Moscow, with Rosneft shares rising over 2%.

In agreement with Rosneft, FAS said there were “signs of irregularities” in the sales terms. FAS said it would consider the complaint from Rosneft on Jan. 15, looking into the size of the down payment of 21 billion rubles, for starters. The starting price for the assets is now $526 million.

It’s too soon to tell whether this is a deja-vu moment for Rosneft and Sechin.

Rosneft’s purchase of Bashneft, a regional natural gas company, led to a multi-billion dollar lawsuit against the company’s previous owner, private equity firm Sistema.  The federal courts found that Bashneft was illegally sold to Sistema and forced its billionaire owner, Vladimir Yevtushenkov, to return it to the government. The federal government took it over before selling it to Rosneft. Rosneft sued Sistema twice for a total of more than $2 billion and finally agreed on a settlement of $1.7 billion, or 100 billion rubles. The settlement is nearly equal to Sistema’s 122.5 billion ruble market cap. The company’s share price fell 45% once it became clear that Rosneft was on the attack.

“That…entire case has much more to do with the way Russia Inc operates overall, particularly in the area of natural resources,” Renaissance Capital analysts led by Alex Kazbegi wrote in a note to clients on Thursday. Some investors breathed a sigh of relief that the Sistema vs Rosneft case was closed. Russian stocks, as measured by the VanEck Russia (RSX) fund, are up over 8% so far this year, beating the MSCI Emerging Markets Index.

If Rosneft decides to take a similar tack against Alrosa, or whoever owns those new natural gas fields, corporate Russia will take it on the chin once more.

Rosneft rival Novatek is owned by Russian billionaire Leonid Mikhelson, who is reportedly a business partner with Kirill Shamalov, believed to be married to one of Vladimir Putin’s intensely private daughters, Katarina.

Sechin has been a part of Putin’s inner circle since his first term as president in the early 2000s. Finance Minister Anton Siluanov is chairman of Alrosa’s supervisory board.