Naftogaz, Kolomoisky initiate Ukrnafta split

Ukraine’s leading crude oil producer Ukrnafta (UNAF
UK) has scheduled a shareholder meeting for Nov. 30 aiming at split of the
company’s assets between Naftogaz (which controls a 50%+1 share in the company)
and other shareholders (the biggest of which is Igor Kolomoisky, about 40.1%).
Namely, the EGM is offered to approve: 1) transfer of some of Ukrnafta assets
(which market value may exceed 50% of Ukrnafta’s book value of assets) to its
fully-owned subsidiary Ukrgazaktyv; 2) Ukrnafta’s sale of 100% rights in Ukrgazaktyv
to Naftogaz; 3) Purchase by Ukrnafta 50%+1 of its shares from Naftogaz and
cancellation of these treasury shares. If the deal is approved and realized,
Naftogaz (NAFTO) will become a sole owner of some of Ukrnafta assets and won’t
own Ukrnafta shares, whereas Kolomoisky will own over 80% of Ukrnafta.

Besides the split of Ukrnafta assets, the EGM will
consider granting a right to Ukrnafta to conclude a settlement agreement with
Naftogaz regarding a dispute over natural gas produced by the company in
2007-2013, or conclude an amicable agreement regarding lawsuit #910/3660/18.
These disputes refer to a claim of Ukrnafta and its minority shareholders
demanding that Naftogaz returns to the company natural gas “expropriated” in
2007-2013. The total claim of Ukrnafta to Naftogaz, according to the mentioned
lawsuit, amounts to 9.07 bcm of gas.

The EGM documents provide no information about assets
of Ukrnafta that will be effectively exchanged into Naftogaz’ 50% stake, nor
other details of possible deals, except for the timing of Ukrnafta’s purchase
of its shares from Naftogaz (one year).

Alexander Paraschiy: The split of
Ukrnafta assets between Naftogaz and Kolomoisky is a long-awaited event that
should eliminate mid-term risks of state holding Naftogaz from being a
“partner” of the unreliable and toxic tycoon. However, a big question is – how
much Naftogaz will pay for this “divorce” – the EGM documents provide no
answer. A lot will depend on Naftogaz’ and Kolomoisky’s ability to defend the
valuation of their portions of Ukrnafta assets.

Also, in this split, the size of Ukrnafta claim to
Naftogaz for “expropriated gas”, as well as the way this claim is resolved in
the amicable agreement, will be very important. Taking into account the
unusually high market price for natural gas now (implying the current value of
the disputed gas is more than USD 9 bln), the timing of the “divorce” does not
look optimal for Naftogaz.