British Tell Kuwait to Cut BP Stake : Arab Oil Producer Could Lose $593 Million in Selloff

The British government told Kuwait on Tuesday to sell more than half of its $5-billion stake in British Petroleum Co.--a move that drew an angry reaction from the Arab oil producer.

Kuwait could lose about $593 million in a forced selloff of about 700 million BP shares, stock market analysts said.

After a four-month investigation, Britain’s Monopolies and Mergers Commission said Kuwait’s $5.09-billion stake in BP represented a potential conflict of interest with Britain. BP is Britain’s largest company and the world’s third-largest oil concern.

British Trade and Industry Minister Lord Young said he accepted the report, which recommended that the state-owned Kuwait Investment Office cut its 21.6% stake in BP to 9.9% within a year.

Young opted for divestment, despite Kuwait’s pledge to limit its voting rights in BP to 14.9%. The monopolies commission said that was still large enough to let the Persian Gulf state influence BP’s policies.

“The commission noted that, unlike other shareholders, Kuwait is a sovereign state with wide strategic interests and could be expected to exercise its influence in support of its own national interest,” the report said.

BP Chairman Sir Peter Walters had said the company was uncomfortable with a Kuwaiti investment above 10%. British media reports said he told the British government that BP’s prospects in the United States and elsewhere might be hurt if it were seen as partly owned by an Arab oil producer.

Young asked Britain’s Director General of Fair Trading to have the Kuwait Investment Office reduce its BP holdings, and limit its voting rights to the 9.9% stake until the divestment is made.

Initial Reaction

The London-based Kuwait Investment Authority reacted angrily to the panel’s ruling.

“The state of Kuwait’s initial reaction is to be extremely dissatisfied with the way in which the MMC has reached its conclusions and with the reasoning on which these conclusions are based,” it said in a statement.

The BP stake was the largest single overseas equity investment ever by OPEC-member Kuwait, which commands an international portfolio worth some $80 billion. British press put Kuwait Investment Authority’s British holdings at some $16 billion.

Analysts said Kuwait’s reaction was understandable. “The way it (the BP issue) has been handled has been rather blunt, if not brutal,” said Mike Unsworth, oil analyst at London brokers Smith New Court.

He said that Kuwait had effectively bailed Britain out by building up its BP stake in October and November last year, after London put its remaining 31.5% BP holding into a market depressed by the Oct. 19 crash.

Few takers surfaced for that $12.2-billion (7.2-billion pound) offer, which was part of Conservative Prime Minister Margaret Thatcher’s sweeping program to privatize state-owned industries.