Russian partners inside the TNK-BP joint venture are talking to bankers this week about raising money to make a $20bn-plus (£12.4bn) cash offer for BP’s stake in the oil and gas business next month.
The oligarchs who control the Alpha Access Renova (AAR) consortium had been offering to purchase half of BP’s 50% stake in TNK-BP – but they have been forced by interest from state-owned rival Rosneft to increase this.
“They [AAR] have decided they will make a cash offer for the full BP stake and are beginning to talk to banks,” said sources close to the Moscow-based consortium. Asked why they had changed their minds, the source said: “Clearly circumstances have changed and we are dealing with a bidding situation with Rosneft offering cash and shares and BP making clear it is not interested in selling only half of its stake.”
The BP share in TNK-BP is generally thought to be worth $20bn-$25bn but AAR shareholders Mikhail Fridman, Viktor Vekselberg and Len Blavatnik, have apparently not yet decided exactly how much they will offer.
AAR had previously said it was willing to pay $10bn for a 25% stake in TNK-BP, Russia‘s third-largest oil company. BP, which needs cash to help pay for potential liabilities from the Deepwater Horizon accident in the Gulf of Mexico in 2010, has already talked to Rosneft and Vladimir Putin about a cash and share swap worth $20bn. BP, which has had a turbulent relationship with AAR, may see benefits from retaining a stronger foothold in Russia through a tie-up with Rosneft even in the face of a full cash offer from the oligarchs.
Under a shareholder agreement, only AAR may make an offer before a 90-day deadline which falls in mid-October. Other bidders may then step in with formal offers, creating the prospect of a bidding contest.
Bankers have told Reuters that it would be possible for AAR to finance a significant portion of any purchase by leveraging up TNK-BP, which has paid out $19bn in dividends since BP came into the venture in 2003.
TNK-BP posted a record $14.6bn in earnings before interest, taxation, depreciation and amortisation last year and had a low gearing ratio – a measure of its debt in relation to its equity – of 26%.
Its gross debt was $8bn at the end of 2011, all of it unsecured and most of it long-term. That indicates, some bankers say, TNK-BP’s ability to sustain a higher debt burden to finance a possible buyout by AAR.