Fundamentals of Sibir remain very strong but it's been hugely punished along with the rest of the Russian market.
Let's start with the Russian market situation first. What we are going to see in the coming months is the state having to bail out oligarchs who've been forced to make margin calls due to the massive Russian market declines. However, the whole market-crash-post-Georgia, exacerbated by the international crisis and the flight from emerging markets has done huge credibility damage to the Putin / Medvedev regime. Remember this is a quasi-oligarchy that derives its sole legitimacy from the material gains to the Russian population and perceived re-strengthening of Russia. Yet now these material gains are seriously threatened and worst, those who have benefitted most (the elite) have been seriously hurt. So I don't think that we're going to see a return to more nationalisation and state interference over the coming years - quite the opposite, I think that the regime is going to have to make greater efforts to appease investors and encourgage the perception that they don't mess around with companies.
As to Sibir, the company owns some fantastic assets (including JV in the Moscow Refinery and some impressively large oil fields). In July the FT was raving about Sibir's dominance on AIM and its moves to enter the FTSE, profit was trebbling and output up by 80%. The dispute with Gazprom (more or less standard fare in Russian oil) is moving to a mutually successful close etc. But then came the market crash and worse, two of Sibir's major shareholders were forced to sell Sibir shares they had pledged as collateral for other invesments (like so many other oligarchs). And on top of that the oil price fell back.
Nonetheless, it now looks increasinly certain that oil is going to hold at the 70 / 80 mark, which leaves plenty margin for those like Sibir able to pump it from the ground significantly cheaper. I think that at current valuations (the stock down almost 70% from its July peak) this one looks very worthy of a play if you can stomach the Russian market risk....
Disclaimer:
As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.
27 Posts on this Thread show/hide all
http://www.themoscowtimes.com/article/1009/42/372286.htm
another good article on the murky corporate governance. Sibir's assets remain good but the market is punishing them for this support of Chagrinsky.
Is this a classic example of turning bearish at the bottom? Jackalope, are you my new contrary indicator?
Oh this just get's uglier and uglier...
Sibir more than halves... it seems that they've bought more distressed real estate assets from Chigirinsky (major stock holder)...this is first class scandal - total corruption... as you've mentioned Murakami this isn't the first time this has happened.
The are buying the Russia Tower... a 600m tower designed by Norman Foster that was supposed to be Europe's tallest building. Building stopped last month on the project due to lack of funding...
Russian small caps are screwed - minority shareholders have no rights when someone like Chigirinsky holds such sway over management... utterly scandalous. But even the Moscow government are in on this one - they hold 18% of stock.
It gets uglier though... apparently Chigirinsky has put his stake in Sibir up as collateral for loans... he's basically facing massive margin calls, and the Sibir management have said...
"As the preservation of the company's shareholder structure was paramount, the board has concluded that the company must take over the bulk of Mr Chigirinsky's remaining real estate business."
Outrageous.
Yep - run away!
I foolishly bought some stock a few weeks back thinking the worst was out - and foolishly believing managment statements that there were no further margin calls. In any normal market place this would be an absolute scandal... the treatment of minority shareholders is a real disgrace, and frankly I feel that I've been robbed. I wouldn't even recommend going in now, as the valuation is now so low that one can quite easily see the board taking the company private or selling to the major shareholders for tuppance... amazing times we are going through and I suppose there's much more value to be had in undervalued but reputable majors than some smallcaps, especially those in an oligarcy. Mind you, the FT this week had a good article saying that shares were still not that well valued compared to historical norms and that debt was now the place to look for value (with sub-investment grade corporates pricing in 50% defaults).
http://www.stockopedia.co.uk/news/announcement/SBE/081216sbe1998k.htm
RNS today... interesting stuff... now exceeding production of 80,000 bopd from core upstream assets... that's some serious production.
I didn't realise that Henry Cameron the CEO was a scot. That does make these recent shenanigans even more interesting. Being Dundee born, I've always trusted the scots as they are tight bastards. He's taken Sibir a very long way and clearly has the bottle to operate in Russia... so how do these dodgy Chigirinsky dealings work into the whole plan?
If i'd looked at the numbers a bit more a couple of weeks ago, I'd probably have bought some Sibir when it fell to 30p. Ridiculously cheap oil production in spite of the strange property dealings.
Couldn't help but notice in todays RNS that Tchigirinsky has signed an indemnity (guarantee) over any loss to Sibir arising from the acquisition of his property assets. Does anybody think that this indemnity is worth anything considering that Sibir has had to bail him out? I thought that he was in serious financial trouble.
Possible return to sanity... The company adjourned a shareholder meeting to vote on plans to purchase property assets from Tchigirinski, saying that its other shareholders wanted time to study the proposal.
Let's hope the plans get the short shrift they deserve!!
http://www.stockopedia.co.uk/news/announcement/SBE/090130sbe5583m.htm
Absolutely mindblowing, The CEO Cameron has now come to his senses and stated that Sibir Energy will no longer be purchasing ANY of Tchigirinsky's assets! The stock has rallied 40% on the news. I'm struggling to make sense of all this about turn... anyone have anything on this? Jackalope?
A late response to promethian's post but I suppose - despite the complete highs and lows of the past few months and shoddy treatment of AIM investors - Sibir's core assets remain extremely attractive. I have to confess having bought in just before the crash, so went down about 50% and am now back up 50%. My guess is that the Moscow City council - who are the major shareholder beyond Tchigrinsky - got fed up with the massive depreciation in value of Sibir after the bailout of the later and possibly exerted some political pressure on him to stand on his own two feet. After all the bailout was hastely agreed at the hight of the market madness, and so much comes down to politics in Russia. Would I buy in again to Sibir at current levels - only with extreme caution... if they avoid having to bail out Tchigrinsky then even at low oil prices Sibir is basically pumping out money and just think what it will do if oil rallies again....
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/4809117/Sibir-Energy-suspends-its-chief-executive.html
just when you think it couldn't get any worse - when shares resume trading i'm relishing my 50% gain turning into an 80% loss.... for those feeling brave though their could be a bounce after the fall... there's not really a sentiment option for disgusted is there?!
I had an interesting conversation with a Russian investor who complained about the insider dealing regulations in the UK. She said, "in Russia, this is not illegal. It's not strictly legal either, but it's never a problem."
The truth is, there was economic sense in what Sibir did. All these companies are tightly held and therefore lack the liquidity to sell chunks without killing the share price. These sorts of loans were widespread in the US until Enron, Worldcom etc caused rule changes. They were popular because it allowed board members to sell shares when they had market sensitiive information. For example, if you knew the company was about to tank, you could sell your shares, before everyone else knew. So Russia gets vilified again for the same short of shady stuff done elsewhere.
As for the stock now, it does look appealing. The general risks are the uncertainty of the tax split on oil. Basically, the government gets about 90% of the revenue about $35 a barrell, which has hurt the producers as prices rose and the cost rises exceeded post tax profit increases. So, there's a lot of underdevelopment in the Russian industry and the risk the authorities could could force nationalisation to get the assets back . For that you need the owners start to publicly criticize the government, appear to have too much power or monopoly on a sector. Gazprom is quasi-sovereign, Putin's toy.
In my view, Russia will come back strongly, it's simply , but it does need to enfranchise the people, to get genuinely diversified ownership. It could worsen though, especially if Putin and Medvedev argue in public and there is a split between Gazprom and the government, but markets like this (Germany, Turkey esp) tend to fall peak to trough 70 - 80% and then come back 3 to 5 years later. What's interesting is the macro deflationary pressure from the drop in price of raw materials probably exceeds the money being thrown at the problem. Until prices start to go up, the economy will stay dormant and it hurts Russia especially.
I am not sure I follow your argument - are you saying that, because these sort of practices occurred in the West until recently, they are somehow fair game in Russia? Isn't the point that the US woke up to the fact that this sort of insider selling was unacceptable since it unfairly disadvantaged people who bought into the shares without access to this kind of information, and Russia should do the same if it wants foreign capital?
Amazing stuff, really...http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6049486.ece
I will never invest in Russia. It is a very bad country to put money into. Puptin is IMHO an unconvicted crook from his time in St. Petersburg and completely untrustworthy as are those who put him in power. Making a choice to invest there is like buying swampland with crocs in the muck. Beware the blue-sky because when prices for oil comeback things will return to "Russian-normal" and you will experience negative-returns on your money. There are many many many very good opportunities available elsewhere which do not carry the massive risk that Russia represents for investors.
With due respect to tedw, the news on Reuters today (see below) suggests those holding Sibir will be very happy when the shares re-float. Perhaps we should consider the two headline Russian names and the bearing on investing in Russia.
Sibir - this was clearly a total cock-up. Tchigirinski did what so many people had done and leveraged his equity holdings, in order to maintain voting rights and the economic upside, but got caught when things headed south. This was being done all over the place, but Sibir was hit harder than most by the lack of liquidity owing to (i) concentration of ownership, (ii) Russia. Management took a view that the best thing to do was lend him the money, and this was a big mistake, but there is more to the story than we know of, especially the behaviour of the institution that had provided the secured loan. However, the court case is more about the publicity of taking action than anything else. The fundamentals of the company are little changed, the assets are still excellent. Tchigrinski will clearly end up losing his stake.
Mechel - again, this was a mistake. They were essentially selling to a Swiss sub at below market price to avoid tax, which is illegal in any sophisticated country. You can't do this anywhere and the Russian authorities were correct to take action. They could have fined them, but instead forced them to sell to Russian companies at the same market price. It's actually quite funny. When the CEO was called to discuss the events, he cancelled on the day saying he was ill. Putin said, "we will send him a doctor to make sure he gets better and then, he can come and see us." It surprised me, given the management, but the guys I met have been promoted and I expect things to be fine going forward, although the market will be tougher for Mechel given the problems in the steel industry.
However, the actions of both of these names severely exacerbated people's concerns about Russia. The authorities will punish those, but I don't see any reason for them to punish other investors.
One final comment about Russia - in 1998 when the economy crashed, they defaulted on their RUB denominated GKOs, but they did not default on the USD bonds. There is zero evidence that they punish foreign investors more than locals. Yes, Russia is risky but the returns more than compensate and although I wouldn't go near real estate assets or banks for that matter, the enormous natural resource wealth of the country cannot be denied.
http://uk.reuters.com/article/businessNews/idUKTRE53M37020090423
So long, Sibir - Gazprom Neft had made a 500-pence-a-share cash offer for the entire company.
http://www.guardian.co.uk/business/feedarticle/8525814
http://online.wsj.com/article/BT-CO-20090526-705292.html
Oh well, looks like mummy bear has woken from her hibernation. You could always use the money to buy shares in Gazprom...
Interesting news - Gazprom have bought a 50% stake in Bennfield Ltd, the holding co that owns 47% of Sibir. It is not clear if that is 50% plus 1, i.e. controlling, but I am sure the other shareholders will do what they are told. They now have a direct 34% stake and this and have said they will not be making an immediate offer for more shares, but it looks likely to happen at some point. However, since there is only about 2% of the company outside of this or the City of Moscow (18% stake), this is minor.
I'd be interested to know if anyone in this via a spread bet/ CFD can tell me what's happened to their position, is it frozen?