China National Petroleum Corp, Malaysia's Petronas, the UK's BP and India's Oil and Natural Gas Corp are thought to have come in as strategic investors to back the deal, though this has not been officially confirmed.
State-owned Sberbank and Gazprombank and Russian billionaires including Roman Abramovich are also thought to have bought sizeable stakes.
The shares were priced at $7.55 from a range of $5.85-$7.85 after a more than 1.7 times oversubscription. The IPO values Rosneft at $79.8bn. The price range had been narrowed to $7.15-$7.85 this week.
After months of speculation about the size of the sale, valuations and the political implications of listing Rosneft, the sale went right to the wire. The G8 summit begins in St Petersburg on Sunday and President Vladimir Putin is believed to have wanted the deal completed before it.
Global coordinators ABN Amro, Dresdner Kleinwort, JP Morgan and Morgan Stanley closed the deal a day early on Wednesday, and Rosneft was expected to price the sale yesterday (Thursday).
However, the Russian government apparently refused to accept the pricing advice of its global coordinators and delayed the completion of the deal. Pricing was finally announced at 9am on Friday morning London time.
While the government was wrangling with its bookrunners yesterday, Rosneft's opponents were doing their utmost to derail the listing, which is the world's fifth largest IPO ever and by far the largest from Russia.
A group of US investors persuaded a Dutch court to freeze $9m of Rosneft's assets as part of a lawsuit relating to losses they had incurred as a result of holding Yukos stock.
Rosneft bought Yukos's main operating unit Yuganskneftegaz for the knockdown price of $9.4bn in 2004 after a dubious auction following a politically motivated demand from the Russian government that Yukos pay hundreds of millions of dollars in back taxes.
Also yesterday, near-bankrupt Yukos appealed to a UK court to prevent trading in Rosneft's London-listed global depositary receipts — having failed in an earlier attempt to get the Financial Services Authority to stop the IPO. The case will be heard today (Friday).
A banker at one of the bookrunners dismissed the efforts to destabilise the IPO as insignificant and said that both risks had been identified in the prospectus and had no material bearing on Rosneft.
The banker added that no orders had dropped out of the book as a result of legal efforts to scupper the listing yesterday or the 1.6% fall in the FTSE 100 index.
The shares will be listed on Moscow's RTS and Micex exchanges as well as in London.
The Russian government raised a total of $8.5bn in the IPO to repay a bridge facility used to support Rosneft's acquisition of a 10.7% stake in Gazprom. The company also sold 254m new shares to raise $1.89bn before the greenshoe.
Transparency or arm-twisting
Despite the deal's success, many observers felt the Rosneft IPO had revealed unpalatable truths about Russia and how it does business.
"In many ways, Rosneft's IPO tells us everything about contemporary Russia," said a syndicate banker at one of the bookrunners. "On the face of it, the listing is about opening the company and the country to outside influences and investors, creating transparency and integrating Russia into the global market.
"In practice, the deal has been about overt political influence and arm-twisting of both domestic and international strategic investors on an unprecedented scale. This is international market-based capitalism, but not as we know it."
President Putin has used Rosneft's IPO as a showcase for a new era of financial probity in Russia.
On Wednesday evening, he told German television channel ZDF that the IPO had been conducted in accordance with market principles and that transparency was a major focus for the listing and the company.
Putin has also used Rosneft's IPO as a riposte to criticism — including from US Defense Secretary Donald Rumsfeld — that Russia was using its energy resources to bully other countries and had failed to open its domestic market to international competition.
Problematic legacy
The way the deal was managed could prove problematic for Rosneft in the future, according to some observers.
While the Russian government's main goals were to enhance its international prestige and raise the highest possible sum from the IPO, Rosneft has further needs, such as being able to return to the market for more capital in future.
No one is sure exactly how much of Rosneft's float was sold to strategic investors such as oil companies and Russian banks and oligarchs. But the higher the amount, the smaller the foothold Rosneft has gained in the international markets.
"The strategic investors that have bought into Rosneft aren't there to make a quick buck," said another syndicate banker at a bookrunner. "They bought shares to gain access to Russia and influence. And selling those shares will automatically result in a reduction of access and influence. Consequently, liquidity will be reduced."
Assuming the $1.1bn greenshoe is exercised Rosneft will have a freefloat of 14% after the IPO, but this will count for little if much of the stock is in the hands of companies or individuals that are anxious to gain access to oil reserves or will not sell for fear of upsetting the Kremlin.
The bookrunners cannot be held wholly responsible for this predicament.
They were asked to build a book for the entire deal — including strategic investments — but, according to a senior banker on the deal, they effectively had no control over where stock was allocated.
"The whole process is top-down and strategic — in its broadest sense," said the banker. "Our role is basically following orders."
The banker added: "Whatever gets written about Rosneft, strategic investors did not make up the bulk of demand. If they make up the bulk of allocations, that's beyond our control."
It's completion that counts
Some market participants said too much emphasis had been put on the role of strategic investors and that the media and naysayers had ignored the bigger picture.
"There's been a lot of self-righteousness from people both inside and outside the deal," said one banker. "The completion of a deal of this size, from Russia and coming after market turmoil in May and June, is a fantastic achievement. You can be pedantic about end distribution — and people have been — but the deal was completed, and that's what matters."
The banker said that even if just $1bn of the deal — less than 10% of the shares — was distributed to institutional investors, the stock would still be liquid enough.
"The absolute size of the deal means that there will still be liquidity," he said. "And although the strategic investors may be subject to lock-ups, their stakes will nevertheless be in freefloat and could be sold."
The banker said the more important implication of the strategic investors' presence was in relation to valuation.
"It will be interesting to see what will be sustainable in terms of valuation," he said.
"The stock could behave in an unusual way because of the impact strategic investors have — the market could recognise that the strategic investment effectively increases the value of the company by increasing the scarcity of stock."
At the issue price, Rosneft is valued at a hefty premium to its Russian peer Lukoil. Rosneft produces around 1.7m barrels of oil a day, compared to Lukoil's 2m barrels. Both companies are forecast to be producing around 4m barrels by 2015, meaning that Rosneft is expected to grow faster.
However, during the marketing of the IPO it became apparent that Rosneft's close relationship with the Russian government was a crucial intangible factor in its valuation.
Some observers have said it is highly possible that Rosneft could acquire further Yukos assets — including valuable refining facilities — when the Yukos bankruptcy reaches its conclusion.
The banker added that in the final days of the bookbuild, the presence of strategic investors had become a lure for institutional investors rather than a stumbling block.
"It's always tricky to get institutions to sign up early in the bookbuild and this was no exception," said the banker. "But the presence of strategic players proved to make it more compelling."
Bankers keep mum
One of the notable features of the IPO process was the reticence of many bankers involved in the deal to talk about it openly.
While bankers on all flotations have to be careful not to talk up listing hopefuls, they are usually willing to discuss the mechanics of the deal. In the case of Rosneft, many bankers involved flatly refused to talk about the importance of strategic investors to the deal.
What comment there has been from bankers working on the IPO has been broadly negative. Most bankers admitted that the influence of the Kremlin on every aspect of the IPO was all-pervasive.
"They have dictated everything to do with this IPO," said one syndicate banker. "The timing, the pricing, the structure, who the float was marketed to and the tone of the deal."
Of course, all vendors are protective of the value of the company they are selling, and governments can be more controlling than other vendors, since they stake much political capital on being seen to sell national assets at the right price.
But the Russian government has set new standards in forcefulness. "Being involved in this IPO is tremendous for us as a bank," said one banker. "The deal is historic, both for Russia and equity capital markets. But it hasn't exactly been a pleasant experience."
In contrast to many bankers' reluctance to talk about the deal, investors have been more vocal than usual in commenting on Rosneft's IPO.
In April, before premarketing started, legendary investor George Soros, Morley Fund Management, Standard Life and F&C Asset Management announced that they would not buy Rosneft shares when it listed because of the unknown risks.
Just a month ago, Mark Mobius, who runs Franklin Templeton's emerging market business and is one of the best known emerging markets investors, said he had no interest in Rosneft, because of the threat of legal action hanging over the company.
However, once the books opened the story changed, according to bankers in involved in the deal. While there was still considerable resistance to the valuation of Rosneft at up to $80bn, the "ethical concerns" became less important.
"Some of the investors that had made a public stand against the Rosneft float were in contact with the bookrunners and may have had one-to-ones with the company," said the head of syndicate at one of the bookrunners.
"I don't want to call them hypocrites because they are just doing their job — pushing for transparency and then analysing the figures to assess a potential investment — but there was a notable change in emphasis among many investors."
Laurence Neville
