Russia to Sell Rosneft Stock in $59 Billion Plan to Cut Deficit

Russia plans to sell as much as 15 percent of OAO Rosneft, its biggest oil producer, as the government seeks to raise 1.8 trillion rubles ($59 billion) in asset sales in the next five years to help balance the budget.

Prime Minister Vladimir Putin’s government approved the plan to sell stakes in about 900 companies, including lenders OAO Sberbank and VTB Group, First Deputy Prime Minister Igor Shuvalov said late yesterday. The comments, initially reported by Interfax, were confirmed by Shuvalov’s spokesman.

The government will use some of the revenue to narrow itsbudget gap to 1.8 trillion rubles, or 3.6 percent of gross domestic product, in 2011 from an estimated 5.3 percent this year. Russia had a shortfall of 5.9 percent last year, its first deficit in a decade, after the economy posted its biggest contraction on record.

“The government views privatization not only as a way to finance the budget deficit, but also as a tool for improving the investment climate and increasing competition,” Alfa Bank economistsNatalia Orlova and Dmitry Dolgin wrote today in a research note. Relinquishing control of key companies would be “the most important step in this direction,” they said.

The Finance Ministry in July proposed selling minority stakes in 10 companies, including Rosneft, Sberbank and VTB, as part of a three-year privatization plan. The government last year earmarked about 5,500 enterprises for divestment and pledged to sell shares in companies that are already publicly traded to help cut the deficit.

‘Begin Immediately’

Putin and President Dmitry Medvedev must sign the government’s privatization plan before it comes into force. Finance Minister Alexei Kudrin reiterated yesterday that Russia aims to balance the budget by 2015.

“If the president agrees with this plan, we will translate it into concrete actions by the ministries in order to begin immediately,” Shuvalov said.

The government plans to reduce its holding in Sberbank, Russia’s biggest lender, to a controlling stake between 2011 and 2014, Shuvalov said.

Russia will “try to complete” the sale of a 10 percent stake in VTB Group, the country’s second-biggest bank, this year and may sell an additional 10 percent in 2011 and 10 percent to 15 percent in 2012, according to Shuvalov. The government is ready to “discuss the possibility” of cutting its holding to less than a controlling stake of 50 percent plus one share within three years, he said.

Shares Rise

The government owns 60.3 percent of Sberbank and 85.5 percent of VTB Group, according to data compiled by Bloomberg.

Sberbank, which accounts for 15 percent of the 30-stock Micex Index, surged to its highest since January 2008, adding 5.9 percent to 103.29 rubles at the 6:45 p.m. close in Moscow. VTB rose 6.1 percent to 9.93 kopeks. Rosneft advanced 4.3 percent to 218.66 rubles, the highest level since June 15.

In the energy industry, Russia may sell as much as 15 percent of Rosneft from 2012 to 2015 and cut its interest to less than control if “all that’s planned for Rosneft up to 2015” is fulfilled, Shuvalov said. Russia owns more than 75 percent of Rosneft, Bloomberg data show.

The government isn’t considering selling stakes in pipeline operator OAO Transneft, included in the Finance Ministry’s July list, or oil producer OAO Zarubezhneft, mentioned by Finance Minister Alexei Kudrin on Oct. 19, at the moment, Shuvalov said.

Transneft slumped by the most since July 1, falling 5.8 percent to 36,477.74 rubles.

Supporting Ruble

Asset sales will provide “medium-term” support for the ruble and may bolster Russian stocks during the next year, Royal Bank of Canada analysts led by Nick Chamie, global head of emerging markets, wrote in a research note late yesterday.

“Russia is one of the few emerging markets globally undertaking a privatization drive during these volatile times,” he said.

The ruble strengthened 0.2 percent to 30.6037 per dollar. The Micex stock index approached its 2010 high, rising 2.3 percent to 1,528.11.

Russia may sell 25 percent minus one share of OAO Russian Railways, the state-owned rail monopoly, from 2013 to 2015 and 50 percent minus one share of OAO Sovcomflot, Russia’s biggest shipper, by 2013, Shuvalov said.

The government may also reduce its holding in OAO Aeroflot, the national carrier, to a controlling stake. Russia owns about 51.2 percent of Aeroflot, according to Bloomberg data.

In addition, the government is “ready to immediately prepare” for the sale of a 4.11 percent stake in Federal Grid Co., in which it holds 79.11 percent.

‘Best Behavior’

Officials are considering selling part of the government’s stake in OAO Rostelecom after the restructuring of OAO Svyazinvest, the national telephone holding, Shuvalov said.

Aeroflot snapped four days of gains, retreating 0.2 percent to 74.71 rubles. Federal Grid rose 3.3 percent to 37.4 kopeks. Rostelecom slid for a second day, falling 0.6 percent to 138.14 rubles.

The privatization plan may “encourage ‘best behavior’ from the government, and a more investor-friendly approach should appease investor sentiment towards Russia,” Andrew Howelland Maria Gratsova, analysts at Citigroup Inc. in London, wrote in an e-mailed note today.