London has become the favourite to host what is being billed as the stock market flotation of the year - the $60bn (£34bn) listing of Russia's state-owned oil giant Rosneft.
The Kremlin hopes to raise $15bn to $20bn through the sale of up to 49 per cent of Rosneft, Russia's third-biggest oil company, and if London does get the final nod it will be one of the largest initial public offerings handled by the London Stock Exchange.
Given Rosneft's size, the flotation is likely to take place in several stages and may include the sale of a chunk of shares to a strategic investor such as the Chinese or Indian governments. The Russian government would retain a controlling 51 per cent stake.
A final decision on where and how the sell-off will take place will be made in June but the possibility of a July or an October sale has already been mooted.
Tokyo and Frankfurt are also being considered as possible listing destinations, as is the scenario of a multiple listing, but sources familiar with the deal have said the London option is easily the current favourite.
Wherever the main float takes place, a portion of Rosneft's shares will also be listed on the Moscow stock exchange to comply with Russian law.
The Economy minister German Gref has suggested that some $12bn of shares may be placed in London and $3bn in Moscow.
Rosneft has selected JP Morgan, Goldman Sachs, Morgan Stanley and ABN Amro as "joint global co-ordinators" for the IPO. It has also appointed a City public relations firm and one based in Moscow to smooth the way for the sale. Rosneft's prize assets include its sprawling Siberian oil unit Yuganskneftegaz, which is responsible for 11 per cent of Russia's total oil output.
The oil unit is controversial since it once belonged to the jailed oligarch Mikhail Khodorkovsky and his oil firm Yukos, but was forcibly "acquired" by the Kremlin in December 2004 after the government said Yukos owed it more than $28bn in back tax.
At the time Moscow insisted Khodorkovsky, once Russia's richest man, was a crook, and he was later sentenced to eight years in jail for white-collar crime.
The incarcerated tycoon and his supporters allege that he was punished and Yukos broken up because of his increasingly bold political ambitions and opposition to the Kremlin.
Unsurprisingly Rosneft is not keen to discuss the legality of its ownership of Yuganskneftegaz but has resigned itself to the fact the issue is bound to come up time and time again before the IPO.
Sources familiar with the situation say the company is confident that its appropriation of the oil unit is "legally fireproof" because it was first acquired by a shell company and only then by Rosneft.
Rosneft grew by 9.6 per cent last year and with 15 billion barrels it has the second-largest proven reserves in Russia.
However, it also has $11bn of debt and the Kremlin sorely needs a successful IPO to extinguish it.Reuse content