Seeking Alpha
Profile| Send Message|
( followers)  
There was a great column in yesterday's Washington Post by Steven Pearlstein entitled Russian Energy IPO is a Sucker Bet [Ed. note: the focus of the article is Rosneft]. In it, he very clearly states what ought to be patently obvious to any investor: the risks of investing in a state controlled company are significant, and the risks become wildly higher when you're talking about a state controlled company in a state that has a history of confiscating private enterprise and ignoring public investors.

Vladimir Putin, in my mind, is significantly more of a threat to the global economy than is Hugo Chavez (who certainly gets much more criticism from Wall Street professionals-- have you seen anyone floating a new Venezuelan oil or copper IPO lately?) Russia is so much bigger, has larger energy reserves, is part of the G-7, may join the WTO, and sits on the Security Council.

Pearlstein also had a good online discussion on this column at the Post online today, you can read the transcript here.

The take-away for me is this: not only are you crazy to invest in Rosneft or any other large Russian company, but be careful, too, about what the companies you own are doing. For example, BP (NYSE:BP), Statoil (NYSE:STO) and many others are constantly fighting to get access to Russian energy reserves, and I have little faith that the deals they strike will be honored by Putin's government. I am, frankly, flabbergasted that Rosneft is about to get a public listing in London, and that there seems to be significant interest in buying shares -- just ask Khodorkovsky (not that he was a saint, either) what it's like to have your capital tied up in a Russian company.

If Sarbanes-Oxley was responsible for Rosneft listing in London instead of in New York, I think that's one nice benefit to the much-maligned SarBox.

If you want to own a resource company that's state controlled, I'd stick with those (countries and companies) that have a history of respect for outside investors, solid corporate governance, a commitment to the free flow of capital, and a low political profile.

I've owned several companies in this space in the past, such as:

PetroChina (NYSE:PTR)-- It did and does make me a little nervous because I'm not sure China's priorities will always align with the company's, but the blessing of Warren Buffett and the eagerness of Chinese officials to use western markets to add discipline to their stock market helped there.

Statoil (STO)-- I would buy it again if the price was right. The Norwegian government is clearly hands-off on company policies and realizes that they have a cash cow, so they largely focus on effective stewardship of the oil trust that Statoil helps to fund.

PetroBras (PBRA) -- It was underpriced for a long time because of the domestic price caps on fuel in Brazil, and they may have jumped higher than they deserve to because those caps still exist, but it's a profitable company that has not been significantly hamstrung by the government even after many, many years of leftist rule, which investors feared would be tough on corporations.

I'd pick any of these companies over any company in Russia. I'm all for investing in foreign countries, risky companies and emerging markets, as you can see from many of my holdings, but I think taking a chance on Rosneft means taking leave of your senses. Once Yukos was taken over because of Khodorkovsky's politics, international trade was halted for political gain with the natural gas SNAFU last winter, and Putin cronies began appearing in corporate boardrooms, my interest in Russian energy IPOs dried up pretty quick.

Source: Investing in State-Owned Companies Can Be Risky Business (BP, STO, PTR, PBRA)