Hopes remain despite Beijing's choice of rival as only mainland strategic investor in Russian firm's US$11.6b offer
China Petrochemical may still participate in its Russian partner Rosneft's US$11.6 billion initial public offering as an institutional investor although Beijing has picked rival China National Petroleum Corp (CNPC) as Rosneft's only mainland strategic investor, a source close to China Petrochemical says.
State-owned oil major China Petrochemical, parent of listed China Petroleum & Chemical (Sinopec), has a '50-50 chance' of subscribing to Rosneft's shares.
'As both firms are interested in becoming Rosneft's strategic investor, the central government has done some co-ordination and decided only one will be the strategic shareholder,' the source said.
'However, it doesn't preclude China Petrochemical from participating as a financial investor and it doesn't mean it will not be able to co-operate with Rosneft in future projects,' the source added.
A source close to Rosneft's underwriting syndicate confirmed the mainland government's intention to have CNPC - parent of listed PetroChina - as Rosneft's only mainland state-owned oil firm strategic investor but was unaware of China Petrochemical's intention.
CNPC and China Petrochemical declined to comment.
ABN Amro, Dresdner Kleinwort Wasserstein, JP Morgan and Morgan Stanley are the joint book-runners for the offering.
Rosneft has priced its shares at US$5.85 to US$7.85 each, which some fund managers complained was too high compared with the current valuation of rival Lukoil.
Rosneft's controversial acquisition of an asset from another Russian rival Yukos was also a concern.
Last year, CNPC agreed to pre-pay Rosneft US$6 billion on crude deliveries of 48.4 million tonnes up to 2010. It is widely believed the money was used by Rosneft to acquire Yuganskneftegaz for US$9.4 billion last year.
Yuganskneftegaz was a unit of Yukos, forced to sell its assets to pay a US$15 billion tax bill and whose founder is serving a nine-year jail sentence for tax fraud.
Yukos has called on Britain's stock market regulator to stop Rosneft's shares sale, saying it would result in the sale of stolen property. Rosneft's prospectus reportedly warns investors of the Yukos risks.
It is not clear whether CNPC will be promised co-operation projects with Rosneft by becoming its strategic investor.
Rosneft last year formed a joint venture with China Petrochemical to explore oil and gas in Sakhalin in the eastern seaboard of Russia. Rosneft has a 49.8 per cent stake and China Petrochemical 25.1 per cent, and the regional government the remainder.
China Petrochemical won an auction last week to acquire a 96.86 per cent stake in Udmurtneft - a unit of Russian-British owned TNK-BP, despite competition from Russian energy giant Gazprom.
It is China's first acquisition of a significant oil asset in Russia, after several failed attempts by CNPC since 2002 due to opposition from Russian politicians. The price was not disclosed but a source close to China Petrochemical said it was US$3.5 billion. China Petrochemical is expected to sell a 51 per cent stake in Udmurtneft to Rosneft at the same valuation.
Rosneft keen despite risks - B12
Beijing picks CNPC as Rosneft's only mainland strategic investor
China Petroleum still able to co-operate with Rosneft in future
Unclear whether CNPC will be promised co-operation projects