Surgutneftegaz Holding has registered a 12 billion share emission in its subsidiary AO Surgutneftegaz with the Federal Securities Commission as part of the company's efforts to consolidate its holdings, company representatives announced Tuesday.
Surgut has chosen to use shares in its subsidiary rather than the parent organization for the conversion to a single company-wide stock.
On Tuesday, the company announced that single common shares in parent company Surgutneftegaz Holding can be exchanged for 1,000 common shares in its subsidiary AO Surgutneftegaz. The parent company's preferred shares can be exchanged for 300 AO Surgutneftegaz common shares.
Minority shareholders in the Kirishinefteorgzintez oil refinery will be able to exchange their stakes in that company - there are 100 stakes in total - for 16 million shares each in AO Surgutneftegaz. Minority shareholders in several other Surgutneftegaz holdings will be able to exchange their stakes in those organizations for 100 million shares in the Surgut subsidiary.
The announcement has had practically no effect on stock prices.
"The [shares] are staying within the framework the company promised, and they correspond to market prices," NIKoil analyst Gennady Krasovsky said.
Trading in AO Surgutneftegaz common stock on the major OTC trading floor closed at 26 cents per share Tuesday. Surgutneftegaz Holding common shares closed at $240 to $245 each.
A number of potential participants in the consolidation plan expressed dissatisfaction with the conversion's conditions. "We think it would have been more fair to liquidate the Surgutneftegaz Holding and give its shareholders the 13.4 billion AO Surgutneftegaz shares held by the parent company," said William Brauder, managing director at Hermitage Capital Management.
Earlier, some of the company's shareholders had considered fighting the emission in court. Brauder would not comment on whether his company plans to go that route.
Aton brokerage analyst Steven Dashevsky said those most likely to fight the emission are companies that had speculated on Surgutneftegaz Holding stocks in the hope of eventually capitalizing on Surgutneftegaz's consolidation.
"That's what they were thinking about a couple years ago when they bought up the holding company's shares at prices two to three times the current rate," Dashevsky said. "They are certain to lose money in the conversion, and so they're demanding that the parent company's stock holdings be turned over to them."
However, Surgutneftegaz has its own plans regarding those shares. "They were once used to manage the subsidiary. Now the stake will become a reserve, and used for investment projects in the future," said Natalya Olshanova, an adviser to Surgut's president.
Olshanova said the new share issue and the consolidation program will be put to a vote at a Surgutneftegaz shareholders meeting scheduled for May 6. It is expected to pass, since the management has a controlling stake.
Shareholders will also be asked to approve an agreement on how to manage AO Surgutneftegaz shares held by the parent company.
"The agreement will become a guarantee that these shares won't be thrown out onto the market and make it collapse," Olshanova said.
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