Pipeliners

19 April 2007 - Upstream OnLine - Russia's oil pipeline monopoly Transneft said today it would need to issue preferred shares to merge with a smaller company, contradicting earlier government statements and adding to market confusion. Deputy Energy Minister Andrei Dementyev said earlier this week Transneft would not issue more preference shares when it merges with oil-product pipeline monopoly Transnefteproduct (TNP) later this year. But today, the company's head Semyon Vainshtok said an additional preferred share issue would be needed. "There will be an additional issue of preferred shares as well as ordinary shares," he told RTR state television, Reuters reported. Market analysts have said a placement of an additional preferred share issue would help improve turnover in the illiquid stock. The state owns all of Transneft's ordinary shares, which represents 75% of the company's charter capital. Private investors control all of the company's preferred stock, which represents 25% of charter capital. Preferred shares have no voting rights but its holders are entitled to at least 10% of annual net profits. Analysts see the merger as part of the Kremlin's broader strategy to enhance control over the strategic energy sector by creating mighty state giants. Vainshtok said the merged company would not change its dividend policy. "We always treated our minority shareholders with care. And there will be no actions which would worsen their position as the result of the merger," he said. Analysts have repeatedly criticised Transneft for artificially reducing its net profits to Russian standards to pay less dividends to minority shareholders. Transneft argues it needs big money for new projects, such as a pipeline to China.