Kazakhstan’s state oil company looks increasingly likely to be defeated in its attempt to tighten control over its London-listed subsidiary, after investors voiced their concerns about the motives behind the deal.
The proposals from National Company KazMunaiGas, the parent group, which include a potential buyback worth up to $1.3bn, go to a vote of minority shareholders in its subsidiary, KazMunaiGas Exploration Production, on Wednesday.
A vote against the proposals would mark the latest twist in a tussle for control of Kazakhstan’s third-largest oil company. It would also be a blow to NC KMG, Kazakhstan’s state oil champion, in which the government is hoping to float a stake under its ambitious privatisation plans.
NC KMG has already sweetened its offer once, removing one of the most contentious of a set of proposed changes to the agreement that governs its relations with its subsidiary, and raising the price of a proposed share buyback to $9 per global depository receipt.
But many minority shareholders are still planning to vote against the deal, according to investors and people close to KMG EP. Shareholder advisory services ISS and Glass Lewis have recommended that investors vote against NC KMG’s proposals.
“Effectively it’s about ridding the company of its independence and reducing our rights as shareholders,” said Ivan Mazalov, director of Prosperity Capital, one of the largest minority shareholders in KMG EP with a stake of about 2 per cent, who is voting against the proposals. “I think a few investors share our frustration.”
A crucial role in the vote will be played by China Investment Corporation, the largest minority shareholder with an 11 per cent stake, or a third of the free float. The Chinese sovereign wealth fund, which bought its stake in 2009 at a price of just over $20 per GDR, has privately voiced its dissatisfaction with elements of NC KMG’s proposal, according to several people briefed on the conversations.
Frank Kuijlaars, NC KMG chairman, told the Financial Times in July that CIC’s displeasure had prompted the changes to the parent company’s offer.
“They have invested at a price which is higher than the one currently on the table — that was something they felt was disappointing,” Mr Kuijlaars said. He argued that the parent company’s proposals were necessary to help lift the share price: “We agree with them. [But] by doing nothing it’s not going to get better.”
Analysts at Sberbank CIB argued that CIC was unlikely to vote for the proposals. “Probably no one at a Chinese state-owned holding would want to take responsibility for approving a realised loss on an asset,” they wrote. “That suggests [CIC] would have no incentive to vote in favour of the proposed changes.”
CIC declined to comment.
Should the proposals be defeated, it would be a blow for NC KMG, which has presented them as essential to improving efficiency at its subsidiary.
Mr Mazalov said that a defeat of the proposals should force NC KMG to return with a better offer. The parent company attempted to buy out minority shareholders in its subsidiary for $18.50 per GDR in 2014 but the deal was shelved amid falling oil prices.
“We should be able to agree on the buyout price which is closer to fair value of the shares,” Mr Mazalov said.