Cape Times

Glencore competitor­s envy Swiss oil trader’s sale of Rosneft to CEFC

- Dmitry Zhdannikov

GLENCORE’S move last week to sell most of its stake in Russian oil major Rosneft to Chinese conglomera­te CEFC is eliciting admiration from the Swiss oil trader’s rivals – and relief from its bankers.

To rivals, it appears to be a clever deal by Glencore’s boss Ivan Glasenberg, who had initially invested €300 million (R4.65 billion) of Glencore’s money in a deal worth €10.2bn.

On paper, after nine months he shows a small loss: Glencore retains a 0.5 percent equity stake in Rosneft, now worth around €250m.

But crucially, traders expect Glencore to hold on to the most valuable benefit of the deal: an agreement to let his firm sell hundreds of millions of barrels of Russian oil to global markets over five years. “It is a very sweet deal. I wouldn’t hesitate to pay three times what Glencore paid to get those volumes,” said a trader with a rival.

For Glencore’s bankers, the relief comes from unwinding the original deal, Russia’s biggest privatisat­ion since the 1990s, under which Glencore and Qatari sovereign wealth fund QIA bought nearly a fifth of Rosneft through a structure of offshore holding companies funded mostly by debt.

When that deal was reached in December, participan­ts did not fully disclose the beneficiar­ies of their offshore investment vehicle to the public, or explain which Russian banks were among those providing loans.

Most big state Russian banks are subject to US and EU sanctions imposed on Russia over its annexation of Crimea and interferen­ce in east Ukraine in 2014.

“This structure is now being unwound. Everyone will now own Rosneft shares directly – Glencore, Qatar and China. The debt to banks is also being paid out,” said a senior source close to last week’s deal who asked not to be identified due to the sensitivit­y of the issue.

Rosneft is run by Igor Sechin, a close ally of President Vladimir Putin. Putin awarded state medals to Glasenberg for executing last year’s deal, and to the head of the Russian office of Italian bank Intesa Sanpaolo for helping fund it with a €5.2bn loan. The Qataris put in €2.5bn and €2.2bn came from undisclose­d Russian banks.

Sanctions Unwinding the deal gets it off the books of Intesa, which could not syndicate the loan to share risks with other banks, as most lenders declined to get involved, especially as the US was imposing new sanctions last month.

“For Western banks it was a dead end. They wanted to know the beneficiar­ies of the structure and who funded the deal. Plus new sanctions made them even more uneasy,” said a source with a Western bank which was asked by Intesa to participat­e.

The initial transactio­n stipulated that names of the banks could not be disclosed.

Friday’s deal saw Glencore and QIA sell 14.16 percent in Rosneft to CEFC for $9.1bn (R117.64bn). Intesa said its debt will be reimbursed.

“It is the end of the mystery. The Western banks will never find out those details (of how the original deal was set up),” said the banking source who asked not to be identified.

The senior source close to last week’s deal said the initial transactio­n stipulated that names of the banks could not be disclosed, but added that the deal was fully compliant with all sanctions.

Sources insisted that though the structure was opaque, its beneficiar­ies never included firms other than Glencore and QIA.

After the deal with CEFC, Glencore and QIA will retain stakes of 0.5 percent and 4.7 percent in Rosneft respective­ly.

“Glencore being Glencore, there will be a deal behind it. The original agreement included a 5-year supply deal with Rosneft for 220 000 barrels per day or 400 million barrels in total,” said investment bank Investec.

By comparison, Glencore and its rival Vitol had to loan Rosneft $10bn back in 2013 to secure supplies of 490 million barrels of crude, also over five years.

With the old, 2013 deal expiring next year, it was important for Glencore to keep marketing large volumes of Russian crude as it faces stiff competitio­n from the likes of Vitol and Swiss trader Trafigura, two traders at major oil firms said.

“Glencore and QIA did a good deal for the Russian state when it needed money,” said the senior source close to the deal, adding that the oil export contract would stay in force even though the structure of the deal changes with the arrival of CEFC. – Reuters

 ?? PHOTO: REUTERS ?? Traders expect Glencore to hold on to the most valuable benefit of its stake in Rosneft sale.
PHOTO: REUTERS Traders expect Glencore to hold on to the most valuable benefit of its stake in Rosneft sale.

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