Things have gotten ugly again in the TNK, BP divorce. The couple were always uncomfortable under the same roof for years, but the love was lost very quickly following their 2003 marriage. Following BP's announcement on Friday June 1 that it had been approached by a buyer the story that looked like it might end in an amicable separation, but things took a right turn on Tuesday after a Siberian court overturned a previous decision that could make BP liable to $13.6bn in claims from their Russian partners in the Access-Alfa-Renova (AAR) consortium.
Rosneft asks FAS to check shareholder agreement between BP and AAR. Yesterday Vedomosti reported that Rosneft has asked the Federal Antimonopoly Service (FAS) to check TNK-BP Holding's (TNBP RX - Buy) shareholder agreement between AAR and BP for compliance with the principles of healthy competition. Rosneft believes that the agreement interferes with the development of the Russian energy industry.
The claim was brought by AAR in the wake of BP's attempt to do a deal with state-owned oil major Rosneft last year behind its Russian partners' backs, in contravention of the TNK-BP joint venture's shareholder's agreement. AAR claims that they are entitle to the money as compensation for BP's failure to close the share swap deal - a deal that AAR played no small part in bringing down.
The current run in started last month when its Russian chief executive Mikhail Fridman resigned after saying the firm had become unmanageable because of its disputes in a move widely seen as an attempt to force BP out of the joint venture.
Russian oligarchs are past masters at churning regional court decisions and can produce them at will. This one suggests that the members of AAR are once again very upset and intend to make life as difficult as possible for BP if it tries to exit.
The claim was actually brought by a group of no-name shareholders that own a fraction of 1% of TNK-BP, yet feel they have suffered so much from BP's poor deal making ability they are entitled to several billions of dollars in compensation. A judge in the Siberian district of Tyumen dropped the case in November and the shareholders' appeal had been turned down earlier this year - but hey presto: here it is again at an extremely sensitive time for BP.
The billionaire tycoons behind AAR have denied any connection with these minority shareholders or their claims.
Whatever the motive of the court, this week's Siberian court decision is in effect a gun that AAR can hold to BP's head and make it impossible for the British oil major to sell to anyone other than AAR. The Russian consortium said earlier this week that it was interested in buying BP out of its 50% share of the joint venture, while both Rosneft and Gazprom have publicly said they were not interested in the stake, despite media speculation to the contrary.
The Federal West-Siberian Commercial Court ruled on Monday a repeal of previous rulings, which dismissed as unfounded the claims by TNK-BP minority shareholders that their interests were infringed by BP's failed Arctic shelf development deal with Rosneft, as TNK-BP could have participated in the projects.
BP has denied causing any damage to AAR and said the court decision could be the result of 'corporate news,Ó Kommersant business paper reported on Tuesday. BP lawyer Konstantin Lukoyanov said the court's latest decision could damage Russia's investment climate. 'Today's judgment - casts doubt on the ability of the domestic judicial system to create a predictable and effective legal environment,Ó he said.
Dmitry Chepurenko, a lawyer representing the interests of TNK-BP minority shareholders, said he was satisfied with the court's decision, as 'the case has been sent for a new hearing.Ó
Fridman, said last week that the 50/50 partnership with BP is no longer viable. On Friday, BP announced that it received an unsolicited bid for its stake in TNK-BP, leading to speculation in the media that the bidder might be a state Russian company, such as Rosneft, Rosneftegas or Gazprom. However, representatives of these companies denied having made the bid. This week, AAR announced that the shareholder agreement between the two parties does not allow it to be viewed by a third party, which prevents any shareholder deals with third parties.
Due to the lack of transparency and high uncertainty, it is hard to predict a precise scenario, as there are too many potential variants.
Negative for the name, but risks for TNK-BP Holding are limited. We think that if AAR were to take over control of TNK-BP, the risk of a change in the dividend policy and management in TNK-BP Holding for minority shareholders is limited, thanks to the incentives to redistribute cash via dividends to the parent company, TNK-BP International. If another company takes over control, the risks would be higher, but not as much as the market has priced in for the risk of accelerated investments in Russian refineries or other projects. We have a Buy recommendation on TNK-BP Holding with a target price of $4.0/share.