Rosneft IPO Wednesday

Topcat101

FYI,

The below artical is taken form Forbes.


"The initial public offering of Russia's Rosneft Oil is a monster deal, and it is timed for the maximum publicity benefit of Russian President Vladimir Putin, who's hosting the G-8 summit beginning Saturday.

The stock will trade in London and Moscow.
On Friday, Rosneft priced the shares at $7.55, near the top of the expected range of $5.85-$7.85 range. With this price, the offering will raise $10.4 billion, making the IPO the largest Russian debut ever and among the world's largest. It also gives the company a total value of $79.8 billion. Shares are to begin trading next Wednesday.

Russia's largest oil company, Lukoil (other-otc: LUKOY - news - people ), has an esimated 8% more reserves than Rosneft and about five times its refining capacity, but a market cap of about $73 billion.

There's no way for individual investors to assess Rosneft's skill at navigating the swamp of Russian politics and regulatory issues, assuming there's a difference. This may be the key issue in Rosneft's future, and what some see as the company's inside track may explain its apparently rich valuation compared with Lukoil. But how can the Little Guy in Idaho be sure? Compared with the U.S. (bad Ken Lay and Enron aside), Russia's business practices aren't exactly transparent. They may even qualify as opaque.

Individual investors shouldn't forget the forced re-nationalization of Yukos (other-otc: YUKOY - news - people ) and the nine-year prison term for Mikhail Khodorkovsky, the company's former chief executive, who was nailed for tax evasion and fraud. At the time, he was probably Russia's richest man. He supported political groups opposed to government policies, and many observers believe the Kremlin found this intolerable. The government broke up Yukos, selling assets at what many believed was below market value. The action pounded the company's stock and, as the Russian finance minister fretted, raised doubts about that nation's business climate.

Yukos has made a last-minute bid to derail the Rosneft IPO. AFX News reported from Moscow that Yukos is asking a British court to review the government's decision to admit Rosneft shares for trading on the London Stock Exchange. The challenge is based on the allegation that Rosneft and the Russian government improperly wrested the Yugansk subsidiary from Yukos.

Khordorkovsky and Yukos previously asked the Financial Services Authority not to admit the Rosneft shares for trading.

Most small investors will have to dig out a world atlas to see where Rosneft drills for oil. The company is active on Sakhalin Island in Siberia, Timan-Pechora province and in southern Russian, including Chechnya, the same place where a group of terrorists murdered school children in 2004--hardly the place most individual investors want to put their money, even if the thug who planned the attack was recently killed by elite Russian troops. Rosneft operates refineries in Tuapse (in western Russia) and in Komsomolsk-on-Amur (in Russia's Far East).

According to press reports, major importing nations seeking to secure future reserves are lining up to invest in Rosneft's IPO, including India and China. BP (nyse: BP - news - people ), which works with Rosneft on exploration projects off Sakhalin Island, and the Malaysian firm Petronas, are also said to be buyers.

The Russian economy is booming, creating intense interest in Rosneft's IPO. The country's gross domestic product is expected to grow 6% this year, outpacing other G-8 members. But will Putin keep his mitts off the deal? The Yukos experience wasn't encouraging. It's a reasonable bet that he'll steer clear for now, but in the long term, who knows?

Rosneft's shares aren't registered in the United States, making it impossible for American brokers to sell shares to their clients. Investors are free to put their money wherever they want, of course, but getting your hands on the stock may be difficult. A U.S. broker can work with a broker overseas, but this gets expensive, especially if you seek to buy only a small number of shares. And some overseas brokers are reluctant to open an account for a foreign investor specifically to buy shares in a certain deal, for fear of running afoul of anti-solicitation laws.

Of course, if you're dying for the stock, you could fly to London or Moscow, wallet in hand.

Things get a little easier if you wait 40 days, but by then, you've missed whatever pop the deal shows on the opening and in early trading.

With trading set to open next Wendesday, just after the G-8 summit in St. Petersburg, the Russian government probably sees selling a chunk of the state-owned company as a way to legitimize the Russian market while flexing its growing economic strength.

High energy prices have produced a string of solid domestic IPOs in the sector--and the other deals come with a lot less risk than Rosneft's.

Bill Barrett (nyse: BBG - news - people ) of Denver, an independent oil and natural gas company focused on exploration and development in the Rocky Mountain region, priced its deal at $25 per share via Goldman Sachs (nyse: GS - news - people ). The IPO opened at $27.50, rose to $42.59 and recently changed hands at $28.33.

Other strong deals in the energy sector have been TODCO (nyse: THE - news - people ), Hornbeck Offshore Services (nyse: HOS - news - people ), JED Oil (amex: JDO - news - people ), Atlas America (nasdaq: ATLS - news - people ) and Alon USA Energy (nyse: ALJ - news - people ).