The oil giant, which is a major holding of investors such as M&G’s Tom Dobell and Artemis’ Adrian Frost, announced yesterday that it would sell its 50% share in TNK-BP to Russian integrated oil and gas firm Rosneft.
Under the terms of the deal, BP would receive $17.1bn (£10.7bn) in cash from Rosneft and shares that represent a 12.84% stake in the company.
The group also plans to use $4.8bn of the cash consideration to buy a further 5.66% stake in Rosneft from the Russian government, taking its holding to 19.75% of Rosneft stock when aggregated with its existing 1.25% holding.
BP is a common holding among fund managers, with data from FE Analytics showing about 340 portfolios owning the stock in their top-ten positions. Tom Dobell’s £7.6bn M&G Recovery Fund is the largest product with the company in its portfolio, where it is the largest individual holding at 5.7%.
Adrian Frost and Adrian Gosden’s £4.5bn Artemis Income, Iain Stewart’s £2.9bn Newton Balanced, Chris Fontenla and David Keir’s £2.9bn Scottish Widows HIFML UK Equity Income and Sanjeev Shah’s £2.4bn Fidelity Special Situations funds are other sizeable portfolios with BP in their top-ten allocations.
Renaissance Capital oil and gas analyst Ildar Davletshin said the deal "strategically looks very positive for BP". The oil giant, he noted, has replaced "a private partner for a strategic national company which has much bigger access to resources in Russia and has much bigger political support in this country".
Threadneedle Global Equity Income Fund manager Stephen Thornber, on the other hand, told the Wall Street Journal: "The deal is dilutive for BP’s earnings and significantly lowers near-term growth prospects.”
Independent advisory stockbroking and wealth management service Killik & Co retained its positive recommendation on BP’s shares and said its current valuation looks attractive.
However, head of equities Jonathan Jackson added that corporate governance is likely to be an issue, despite BP expecting to gain two seats on Rosneft’s nine-strong board. Some 70% of the firm will remain owned by the Russian state after the deal.
“The deal also has negative implications for the group’s cash flow profile, as BP will lose out on the income from TNK-BP’s high dividend payout policy. Although dividends had recently been postponed due to a lack of a quorum to make the payments, the investment had generated a good return throughout BP’s ownership, with payments of $1.8bn in 2010 and $3.7bn in 2011,” Jackson said.
“In contrast, Rosneft currently pays out only 25% of its earnings in dividends and, looking forward, the plan to acquire additional equity stakes from other shareholders in TNK-BP will add another $28bn of debt to the balance sheet, and potentially hamper its dividend-paying capability.”
BP has pledged its commitment to its progressive dividend policy.
Despite these concerns, Jackson noted that the deal increases BP’s exposure to long-term growth in Russia. This will be made easier by its closer links to the state.
Rosneft is expected to benefit strongly from the deal, as having BP on its board could make it more attractive to western investors while access to better technology will improve production levels from its existing fields.
