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By John Helmer, Moscow

Sovcomflot, the state-owned Russian fleet operator, intends to sell a 25% bloc of its shares on the New York Stock Exchange (NYSE), according to a leak to Moscow business newspaper Vedomosti this week. However, the source identified as “close to the board of directors” does not know for how long the intention will be delayed by government ministers and chief arranger, Deutsche Bank.

Former Sovcomflot board chairman and currently First Deputy Prime Minister, Igor Shuvalov, announced his backing for the NYSE listing on a visit to the exchange last December. But Kremlin rules require privatization of state-owned shares to be launched also on MICEX, the Moscow stock exchange.

The government ministry in charge of privatization has cut in half its estimate for the Sovcomflot share sale from Rb27 billion (currently $844 million) to Rb11 billion ($344 million). “We are not in a hurry. The company is ready to place, looking for a window of opportunity to do this”, the head of the Federal Property Agency, Olga Dergunova, has announced. “The markets are now actually extremely bad for transportation companies.” According to Sovcomflot’s financial report for 2012, it values its assets at $6.9 billion; short-term and long-term loan debt is $2.4 billion. The audited report does not issue an earnings (Ebitda) figure, but this can be estimated from the balance-sheet at $467.4 million. For comparison, the ratios of share price to earnings of the three largest global tanker companies already listed in the US – Nippon Yusen Kaisha (NYK), Frontline (FRO) and Teekay (TK) – are all negative, because the three companies were loss-making in 2012.

The plan for a NYSE listing for Sovcomflot was first proposed in 2002 by Dmitry Skarga when he was Sovcomflot’s chief executive. At the time, Skarga commissioned JP Morgan (JPM) to advise on the sale of a 25% to 45% shareholding as a way of raising cash to fund the construction of new ice-class tankers for the Sovcomflot fleet. At the time JPM estimated the sale of a 25% stake of Sovcomflot would fetch around $250 million. To that the bank proposed adding another $450 million of bank credit to make an investment into new fleet of about $700 million.

The valuation and borrowing estimate were made before Sovcomflot increased its capital size by merging with Novorossiysk Shipping Company (Novoship).

On the other hand, the collapse of tanker rates, the increase in Sovcomflot’s liabilities to $3.8 billion, and a series of rulings from the British courts judging Frank’s management to be “dishonest” have sharply reduced the saleability of Sovcomflot’s shares. The growth forecast JPM provided Skarga in 2002 was also more optimistic than Frank is getting from Deutsche Bank at present.

Skarga’s NYSE flotation was approved in outline by government officials through 2003, but the plan was then opposed by Frank, who succeeded Skarga in October 2004. When asked last December to comment on the move to the NYSE, Sovcomflot responded it is “not correct to put this question to the management of the company. The location and the precise timing of IPO are a matter of competence of our shareholders”.

Sberbank analyst, Sergei Goncharov, warned in a report on Monday in Moscow that Sovcomflot’s value in the market is weakening, and that its 5-year Eurobond is “too expensive. Sovcomflot continues to suffer hard times. Its leverage remains high, and we believe that more problems may arise from the decline in its cash position and the market value of its fleet.”

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