The Russian oil company Surgutneftegaz owns refineries and gas stations, sells a valuable product and makes a profit. But it sometimes fails another test of the capitalist world.
The company is valued by the Russian stock market at even less than its cash and easily sold assets. That astonishing fact suggests that investors see no real value in the business.
Surgut, as it is known for short, is Russia's fourth-largest oil company, after Rosneft, Lukoil and TNK-BP. Its sprawling oil fields, pipelines and drilling rigs should be worth something. It pumps 1.1 million barrels of oil a day. So the struggle to raise its stock value in the eyes of portfolio managers, while more extreme than many of its Russian peers, is emblematic of investors' broad lack of confidence in the country's economy. Outsiders view Russia's companies, however cash-rich, with an incredible degree of skepticism.
Shares in Surgut have fallen in recent weeks to a level where the market value of about $28.4 billion for its common shares on the Russian stock exchange Micex is now lower than the $31.4 billion in cash and liquid assets on its balance sheet, according to Troika Dialog, a bank in Moscow.
This suggests a so-called enterprise value of the company, or its market capitalization considered together with outstanding debt or cash reserves, at less than zero, unheard of for an oil company. The calculation provides a gauge of how investors view a company's assets separate from its current financial position.
''It's an illogical valuation,'' Chris Weafer, the chief strategist at Troika Dialog brokerage in Moscow, wrote in a research note last week about the company.
This spring the Russian market fell faster than those of the other so-called BRIC countries (Brazil, India and China) and since mid-March is down 18.8 percent. Global oil prices have slumped, reducing expected earnings.
But even taking earnings into account, investors take a dim view of Russian equities, if not always pricing them at less than zero. The Russian stock exchange now trades at an average price to estimated earnings ratio of 4.6, compared with the MSCI Emerging-Market Index average of 10.72. It is a glum statistic for Russia, particularly as President Vladimir V. Putin is planning a wide-ranging sale of state assets to raise money for increased military and social spending promised during his campaign.
The price-to-earnings ratio comparison means that, statistically, a company that mines gold or pumps oil in Russia is worth less than half as much as a company that extracts the same amount of gold or oil just as efficiently in Brazil or Indonesia.
For all the value in the Russian economy, this wealthy industrial superpower cannot convince investors that it is a safe place to put money. Even an oil company is a hard sell.
Surgut shares trade in Moscow and on the over-the-counter market in New York. The company has not reported results to international standards since 2002, though a new law intended to make Russia more investor-friendly will require it to do so next year.
Sergei S. Vakhrameev, an oil analyst at IFC Metropol, a Moscow brokerage, said he calculated Surgut's enterprise value as positive, at about $4.9 billion, still slight for a large oil company and equivalent to the proceeds from two months of oil sales at world market prices.
Another example that Surgut is a black box came this year: The company is so opaque that investors did not even know that it had financed the construction of a submarine base in Siberia for the Russian Navy.
The disclosure did little to dispel rumors that the company is, at least in part, a slush fund for the Kremlin, though a publicly listed one.
The company declined to make an executive available to discuss the expenditure, or answer written questions.
Mr. Putin wrote in an article published during his election campaign that, in 2002, Surgut and another oil company helped retool the Petropavlovsk-Kamchatsky-50 nuclear submarine base for a new class of missile submarines known as the Borei, or North Wind.
''We had to ask private companies for help,'' Mr. Putin wrote in the article published in Rossiiskaya Gazeta, the state newspaper. ''I would like to thank them for that.''
It remains unclear how the favor slipped passed investors in the United States and elsewhere who did not know they were financing a Russian strategic nuclear site.
In the company's annual report, the outlay for the base may have been noted as a ''nonoperating expense'' or ''social responsibility expense,'' according to a senior accountant at a Big 4 firm in Moscow, who did not want to be cited discussing a potential client's affairs.
Sergei Aleksashenko, a former deputy finance minister, said during an interview that Russian energy companies were routinely subjected to this ''system of unofficial requests'' from the Kremlin - for financing everything from presidential palaces to ski resorts to military installations.
''It doesn't really matter what it is for,'' Mr. Aleksashenko said. ''You receive a request and you cannot refuse.''
More recently, Russia's leading business newspaper, Vedomosti, revived speculation about another possible reason for Surgut's low valuation.
Citing oil analysts, it said the Kremlin was setting it up for a takeover by the state oil company, Rosneft, which had been bulking up on oil assets during Mr. Putin's time in power. The report came after a powerful aide to Mr. Putin, Igor I. Sechin, became chief executive of Rosneft this month.
Based in the Siberian city of the same name, Surgut is a private company but managed by a Soviet-era director who is close to Mr. Putin. It sells much of its oil, worth about $127 million a day based on average prices for Russia's export blend oil, Ural Crude, last year, to a similarly opaque commodities firm called Gunvor based in the Netherlands and co-owned by Gennady Timchenko, another longtime acquaintance of Mr. Putin's.
The company has emphasized other measures of success than stock price, including high salaries for employees and a favored statistic of Soviet oil ministers but not modern petroleum analysts: the number of meters of well bore drilled. Surgut has yet to publish the 2011 annual financial report on its Web site but, in a press statement, made public that it had drilled 4,746,500 meters, or 15,572,500 feet, last year.
The company is about 30 percent owned by minority shareholders. The owners of the remaining 70 percent remain a mystery - and another reason no enterprising bank or hedge fund can take advantage of the illogical valuations.
In conference calls with analysts, the company has said its own executives own a majority of the shares.
One hedge fund that tried was Hermitage Capital. Its chief executive, William F. Browder, sued Surgut in Russian court in 2004 and 2005 to compel the company to adhere to Russian securities law, something that could have led to a disbursement of the cash reserves, which were smaller at the time but still significant, as dividends.
In November of 2005, authorities revoked Mr. Browder's visa to Russia; a week later, the Russian Supreme Court ruled against him in the Surgut lawsuit. Mr. Browder said during an interview that conflict with either Surgut or Gazprom, the state gas monopoly, had led to his expulsion from Russia. He called Surgut ''the most profitable but least valuable company in Russia.''
Still, some investors think the low valuations in the Russian stock market justify an investment.
Ivan Mazalov, a director at Prosperity Capital Management, a fund focused on former Soviet markets that owns Surgut shares, called the company a bargain.
''Probably a submarine base is unorthodox,'' he said of the recently disclosed outlay. ''But companies do sponsor various things. And this is part of the relationship with the states where they operate. BP pays for shows at the British Museum. Shareholders accept there is something besides taxes these companies pay for. It's all part of government relations.''
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