By Dmitry Zhdannikov and Katya Golubkova
MOSCOW, Dec 2 (Reuters) - Russian oil major LUKOIL could not have chosen a worse time to bid for Spain's Repsol as it not only lacks money and visible Kremlin support but it has also angered its usually loyal small investors.
Minority investors in Russia's largest private oil firm say they are outraged at the potential purchase of a stake in Repsol for up to 10.7 billion euros ($13.49 billion) and would rather see the firm investing in its own stock or production at home.
Russia's largest private oil producer has long been pursuing expansion abroad as a move that would not only help it rival global majors but also give it a bigger diplomatic role in a resurgent and increasingly assertive Russia.
But aside from the opposition it could face from Spanish political circles, LUKOIL's expansion abroad is at the bottom of the Kremlin's list of priorities.
The government is preoccuppied with holding on to the billions of dollars it needs to keep economy afloat, support the rouble and help state-owned giants refinance foreign debts.
"It is a very dangerous deal," said Ivan Mazalov from Prosperity Capital Management. "When Russian companies are writing down losses from their overseas investments it would be wise for LUKOIL to buy its own stock rather than do such a deal."
Mazalov, who helps manage $2 billion including a "big minority stake in LUKOIL", said he wished LUKOIL was better managed in Russia: "If you add assets in places like Argentina, it will become even tougher to manage the company".
Zina Psiola, head of emerging markets at Clariden Leu, says he finds it hard to see any synergies from the deal and that Repsol looked over-priced.
"Investors should not be fooled by the fact that LUKOIL is negotiating with Spanish banks for a ten billion plus loan," said Psiola, whose fund divested its LUKOIL stake this year.
"When things get tough as they already did this autumn we know that they (LUKOIL) will come and lobby hard to get the Russian government to bail them out either in form of reduced taxation and/or refinancing".
"Hence, de-facto LUKOIL intends to do an acquisition at the expense of Russian budget and country's pension system."
Elena Loven, who manages the Swedbank Russian fund, says she thinks the deal could be value destructive for LUKOIL.
"LUKOIL will be forced to cut its capex due to credit problems and poor cash-flows in an environment of lower oil prices," she said. LUKOIL expects oil output to rise slightly or remain roughly flat this year and next.
THREAT TO RATINGS
Sources told Reuters LUKOIL could do a deal to buy 30 percent of Repsol with its top shareholders including Spanish builder Sacyr Vallehermoso and savings bank La Caixa.
LUKOIL, which has yet to comment on the deal, enjoyed great state support last month to finalise a deal to buy a Sicilian refinery from Italy's ERG when Russian President Dmitry Medvedev and Italian Prime Minister Silvio Berlusconi gave their blessing to the deferral of 1.35 billion euros in payments.
But this kind of support is unlikely in the Spanish deal.
"The state has other priorities at the moment. Support in this deal is not being discussed," said a government source, who asked not to be named.
Russian media reported that LUKOIL, which in the past few months has been lobbying the government to take Russia into OPEC, might turn to Middle East investors to fund the purchase.
Still, Russia's largest investment bank Renaissance Capital believes LUKOIL's investment grade ratings may come under pressure even if it secures a favourable financing package.
RenCap estimates Repsol is roughly 80 percent of LUKOIL's size in terms of revenues, 70 percent of which come from refining and marketing. In production terms, Repsol is approximately half the size of LUKOIL.
But LUKOIL's relatively strong debt to EBITDA multiple of 0.4 could suffer a blow should it attract a massive new loan in a situation of strained cash flow generation.
The reported deal price values Repsol at 36 billion euros ($45.39 billion), 85 percent higher that both Repsol's current market price and LUKOIL's own market capitalisation.
"It is close to impossible to find a comparable multiple that would make the deal value accretive for LUKOIL shareholders," said Dmitry Lukashov from UBS. (Reporting by Dmitry Zhdannikov; editing by Chris Wickham)