The Property Ministry said Wednesday it would go ahead with the sale of 5.9 percent of LUKoil in the country's biggest privatization this year despite turmoil on world markets.
Analysts said the placement of about 50 million LUKoil shares in the form of American depositary shares in London on July 31 could still be postponed due to poor market conditions because the government did not urgently need extra money. At the stock's market price, the sale would fetch little more than $700 million.
Analysts also said LUKoil's weak first-quarter results cast further doubts on the success of the placement.
However, others said the official start of the road show Wednesday showed the state had obtained some guarantees that the price would not be too low, possibly from LUKoil itself, which could buy shares via friendly companies.
"I can't understand why the state is rushing to place LUKoil when international markets are in trouble, Russian shares are going down and LUKoil has fallen from its peaks of $18 per share," said Valery Nesterov of Troika Dialog.
LUKoil shares closed 4.9 percent down at $14.17 on Wednesday on the Russian Trading System.
"I can't exclude that even after the end of the road show the government will postpone the placement or place only part of the package," Nesterov said.
A government source said Tuesday that if the Property Ministry officially confirmed the placement Wednesday, it would mean the road show would run in London, New York and Boston from July 24-29, while the placement would begin as planned July 31.
The placement was planned for 2001, but was postponed due to poor market conditions.
The government, which controls around 15 percent of LUKoil, considers the placement a key privatization project and an important element in its new strategy to go directly to foreign investors.
Nesterov said that if the government decided to go ahead with the placement, the price would not be much lower than the current market price.
Konstantin Reznikov of Alfa Bank agreed. "Basically the government cannot go below $13.20 per share as it had previously said it expected to earn between $660 million and $800 million from the sale," he said.
Reznikov said he did not expect LUKoil to lose much of its value after the placement due to extra liquidity because market players have been selling LUKoil in recent months on expectations of a sale and should start buying shares back.
Another analyst, who asked not to be named, said he expected the placement would go ahead at the current market price. "In the worst case, LUKoil can call on its friendly firms for help to buy shares like it has done in the past," the analyst said.
Analysts said the placement could be postponed due to the company's weak first-quarter 2002 financials.
LUKoil said Wednesday its first-quarter 2002 net profit to U.S. generally accepted accounting principles fell to $243 million from $680 million in the same period last year due to lower international and domestic oil prices.
"There is no surprise, and those results meet our expectations. But it is still amazing that they were published during the road show with no apparent obligation to do so," Nesterov said.