LUKOIL is going to buy back its shares from non-residents at a discount

LUKOIL, which completed a large-scale buyback program last year, now wants to buy up to 25% of the company from non-residents for half the price. The amount of the transaction may be about 570 billion rubles. We are talking about shares and receipts owned by investors from unfriendly countries and blocked in the Russian Federation on accounts of type C. Before that, only Magnit conducted such a transaction from Russian companies. Shares of LUKOIL grew on the news by more than 5%.

In July, LUKOIL asked the President of the Russian Federation for permission to buy up to 25% of its own shares from non-residents at a discount of at least 50% to the current exchange price. This was reported by Interfax and confirmed by Kommersant sources. The Kremlin’s permission for such transactions is required under Presidential Decree No. 520 of August 5, 2022. We are talking about securities owned by investors from unfriendly countries, such securities, as well as dividends on them, are now blocked on type C accounts by order of the authorities.

In early August, a similar buyout was carried out by the Magnit retailer through its structure LLC Magnit Alliance. As part of the buyback program, the company bought from non-residents about 16.6% of its shares in the amount of 37.4 billion rubles. As a result of the transaction, about 200 applications from investors from the USA, Great Britain, Germany, Italy, Switzerland, Scandinavian countries, Singapore, Japan, Canada, Australia and other jurisdictions were satisfied. The buyback also took place at a 50 percent discount.

LUKOIL did not officially comment on the possibility of repurchasing its shares, the company does not disclose the exact composition of shareholders and the amount of free-float at the moment. The share of foreign investors for a long time amounted to about 50% of the company’s authorized capital, and its shares were traded in addition to Russia in London and Frankfurt.

Based on the volume of LUKOIL’s authorized capital of 692.8 million shares, the purchase of 25% of the company, taking into account the discount, may require about 570 billion rubles. (with the market value of this package of 1.141 trillion rubles as of August 22). But the final value of the package will depend on the exact size of the discount and on what date the share price will be calculated. On the news of a possible buyout of a large stake in the company, its shares rose in price on the stock exchange by 5.2%, to 6.59 thousand per share, following the results of trading on August 22. Buyout transactions are supposed to be paid using the group’s foreign accounts, that is, the company will not have to buy foreign currency for settlements on the domestic market.

According to the standard requirement of the authorities for transactions with non-residents, LUKOIL will transfer to the budget about 10% of the amount spent on the buyback of its shares. The company will also have to place on the stock market a part of the received package (according to Interfax, we are talking about 20% of the volume of purchased shares). Theoretically, LUKOIL can pay off the rest of the stake.

The last time LUKOIL actively bought back its shares from the market was as part of a large-scale $3 billion buyback program launched in 2019 and completed in 2022. The company then redeemed the received quasi-treasury notes.

According to Sergei Suverov from Arikapital, the practice of buying back shares from non-residents is becoming a trend for the Russian market. He notes that the discount in such cases increases the fundamental value of companies. “Non-residents, who have almost written off Russian assets to zero, will gladly agree to a buyout,” the expert believes. At the same time, he believes that the dividend policy is unlikely to change due to the buyback and LUKOIL will continue to pay dividends based on net profit or cash flow (at the end of 2022, the company paid shareholders 438 rubles per share). But as the number of shares outstanding decreases, the amount of dividends per share will increase, he adds. Another interlocutor of Kommersant admits that the cost of the buyout, if it takes place this year, will lead to a decrease in dividends for 2023.

Olga Mordyushenko