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By John Helmer in Moscow

Limits on the transfer of shares between Russia’s state-controlled tanker companies, Novorossiysk Shipping Company (Novoship) and Sovcomflot, will fall short of the ambition of Sergei Frank, former Transport Minister and chief executive of Sovcomflot for two years. An international IPO of what may be, potentially, the third largest oil tanker fleet in the world, has also been vetoed for the duration of the Russian election campaign period, and the distribution of the IPO value premium put off.

A paper swap without merger will be acceptable to Novoship’s chief executive, Sergei Terekhin. “Whatever the state will decide to do, we will do it, ” he told The Russia Journal through spokesman, Tatiana Prokopenko.

Russia’s Minister for Economic Development, German Gref, confirmed to The Russia Journal, also through his spokesman, that he has agreed to a limited tie-up between the state shareholdings of the two companies. However, he continues to oppose a merger which would consolidate the two companies into a single shareholding, with unified charter capital and management. According to Gref, the formation of a marine monopoly is unacceptable. “We are very attentive to the fact that may be no exclusive service provider”, he said.

The Gref plan agrees to transfer the state’s stake in Novoship from the state property agency to Sovcomflot, acting as trustee for the state; at present, the government controls a 67% voting stake in Novoship, and 100% of Sovcomflot. This transfer of shares would cost the government no money, and Novoship’s management would remain in place.

Terekhin sidestepped the question of whether the proposed merger of the two companies will involve a new share emission, dilution of the existing non-state shareholders, or a buy-out of minority shareholdings in Novoship; these are currently held by Novoship subsidiaries and offshore affiliates. Depending on new valuations, and the involvement of arbitrageurs holding Novoship shares, the buyout price could be higher than a half-billion dollars, industry bankers believe.

According to a source close to Gref, “the Novoship minorities will not be hurt, as their shares will not be diluted, at least not before the real merger.” A full merger, according to the federal Transport Ministry, would be worth about $3.4 billion. Individual and institutional shareholders of Novoship stock hold as much as 38% of the company, which has been independently valued at $1.4 billion. Last year, the Moscow share market valuation of Novoship was about $820 million, and rising fast, as the prospect of a buyout triggered speculation.

Igor Shuvalov, a Kremlin aide and chairman of the Sovcomflot board, first sought the approval of government ministries for the full merger and privatization plan last May. They weren’t happy. Opposition was registered in letters sent back, and circulated within the government, on May 26, June 2, and June 9. The agencies opposed were the Russian State Property Agency, the Ministry of Transport, and the Ministry of Economic Development. In the interval since then, Shuvalov has been forced to retreat. The opposition has conceded only after the cashless paper transfer was agreed.

Alexander Tkachev, Governor of Krasnodar region, where Novoship is based and pays tax, has acknowledged he will be satisfied by the share transfer, instead of the merger proposed by Shuvalov and Frank.

Alexeu Bezborodov, director of Moscow-based maritime source, Infranews.ru, told Fairplay “there is nothing new here. I think a real merger will not happen within the next five years or so. At the very least, they need to get rid of Tkachev first. Before Putin’s retirement, they will be able to swap shares only, not more.”

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