Russian bidder for Tupras may be spreading itself too thin

MOSCOW (Reuters) – Russia’s sixth largest oil firm Tatneft said yesterday it was committed to its bid for Tupras, Turkey’s largest refiner, despite criticism by analysts and rating agencies of the $1.3 billion deal. Tatneft confirmed that Germany-based Efremov Kautschuk GmbH, which made the highest bid in last week’s tender for a 66 percent stake in Tupras, represented its interests. The Russian company, which already supplies Tupras with large quantities of crude, would boost its profits by adding more downstream operations. But some analysts say the purchase, in addition to Tatneft’s reported interest in buying a Czech company, could mean it uses up cash and adds to its heavy debt. «Based on past close cooperation with Tupras as well as due diligence during the last six months, we believe that Tupras is a very attractive company with strong potential, efficient management and highly skilled workers,» Tatneft said in a statement. Efremov Kautschuk has agreed to form a joint venture with Turkey’s Zorlu Group, which has industrial and financial interests, to run Tupras. Turkey’s Competition Board and High Privatization Board must still approve the bid for it to be finalized. A Competition Board official told Reuters yesterday he saw no problems with the Tupras privatization from the competition standpoint. Distribution a problem But asked if the board would allow Tupras’s new owner to also establish a petroleum distribution firm, the official said, «It would not be possible to give permission.» Analysts were divided, however, about whether the Competition Board could make such a ruling in light of a new petroleum markets law. Legislation passed late last year liberalized Turkey’s petroleum sector, allowing for any Tupras owner to simultaneously operate a distribution company. The changes were seen as key to attracting bidders to the tender. Tupras, which controls nearly 90 percent of the Turkish market, has sought to cut its dependence on volatile Middle East supplies and buy more crude under long-term deals with Russia. Leading rating agencies Fitch Ratings and Standard & Poor’s placed Tatneft’s ratings on Credit Watch last week, citing liquidity concerns. Tatneft was also reported to have placed a $500-600 million bid for the Czech government’s 63 percent stake in top downstream oil group Unipetrol. Analysts say the oil firm may have funds enough to cover only one acquisition. Several Moscow-based brokerages have said they may downgrade their recommendations on Tatneft shares. «We believe Tatneft’s recent expansion plans are not very well thought out and may end up having a negative impact on the stock instead of improving profitability by increasing refining capacity,» said Aton brokerage. Other brokerages disagreed. «We believe that it would have the financial assets to purchase Tupras with little problem, given the firm’s estimated $1 billion cash position as of the end of 2003,» said Nikoil brokerage.

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