Daily analyst comments

Interfax reports that, Lukoil, which raised its stake in Lukoil-Nizhegorodorgsintez (Norsi) from 89.33% to 96.91% as the result of a voluntary buyout offer, has initiated a mandatory share buyout from its shareholders. On Monday, the refinery received a request from Lukoil-Norsi-Invest to sell their shares. The mandatory buyout price is the same as the voluntary buyout offer made back in August – Rub 1,565 ($63.80) per common and preferred share. The cut-off date for the buyout offer was December 7, 2008.

In mid-August 2007, Lukoil-Norsi-Invest made a buyout offer to the minority shareholders of one of Lukoil group's refineries Lukoil-Nizhegorodorgsintez (Norsi) as part of the company's rollout strategy. Out of the oil major's four refineries, (Volgogradneftepererabotka, Ukhtaneftepererabotka, Permnefteorgsintez and Nizhegorodorgsintez), the latter is the only one which has yet to be fully consolidated by the company. Norsi's minority shareholders were offered to sell the refinery's shares at Rub 1,565 ($63.80). The terms of the buyout offer turned out to be quite attractive for the minority shareholders, since at that time they exceeded market valuations. Because of this, it was quite logical that most minority shareholders accepted it.

It should be noted that the terms of Lukoil's mandatory buyout offer are favorable for minority shareholders, since the buyout price exceeds the current market price by 9% for common shares, and 8.1% for preferred shares. However, investors will be deprived of a potentially lucrative investment instrument. Lukoil has paid large amounts to roll out and revamp Norsi, and we can expect to see its cash flows climb. However, this was likely the reason behind Lukoil's full consolidation of its refinery. All of the profits from the latter's operations will from now on go to the oil company.

The estimated target price of Lukoil-Nizhegorodnefteorgsintez (RTS: ngns) is $54.80, which corresponds to a Sell recommendation.