RUSSIAN OIL DEAL:
Glencore to sell big stake in Rosneft
Nine months after surprising the world with an $11bn venture to buy a stake in Russia’s state oil company, Glencore is selling most of it and emerging from the deal with a valuable crude supply contract and political ties in Moscow burnished.
The companies announced on Friday that the Glencore-Qatar consortium would sell the bulk of its stake in Rosneft to CEFC China Energy, a little-known but rapidly expanding Chinese conglomerate.
CEFC would become the third-largest shareholder in Russia’s state oil champion after the Russian state and BP, while the Qatar Investment Authority would retain a 4.7% stake.
Glencore would be left with a stake of just 0.5%, but will retain a prized side deal to trade 220,000 barrels a day of oil from Rosneft.
"By means of essentially a political favour to Moscow, they’re able to secure for themselves a significant quantity of material to feed into their trading business at a time when other traders are currently finding this an extremely difficult market," Paul Gait, an analyst at Sanford C Bernstein in London, said.
What is more, the Swiss-based company has cemented its political ties in one of the world’s top producers of commodities.
• 220,000 the barrels of oil per day that Glencore will be able to trade daily
• 39% the surge in Glencore’s overall oil trading volume in first half of 2017
For his role in the Rosneft privatisation deal, CEO Ivan Glasenberg was awarded Russia’s Order of Friendship by President Vladimir Putin.
In late 2016, the Russian government was scrambling to complete the planned sale of a 19.5% stake in Rosneft to help narrow the budget deficit.
The deal with Glencore and the Qatari sovereign wealth fund, aided by financing from banking group Intesa Sanpaola and Russian banks, meant that the budget received the proceeds of the sale before the end of the year.
The Glencore-Qatar consortium "has now been shown to have been a holder of convenience rather than a serious strategic investor", analysts at Sberbank CIB said in a research note on Monday.
Rosneft CEO Igor Sechin even suggested that the deal unveiled in December had only been the first step in the reorganisation of Rosneft’s ownership structure.
The share sale to CEFC "gives a final form to the shareholder structure of our company", Sechin told state television station Rossiya 24.
The Glencore-Qatar consortium will use CEFC’s investment of about $9bn to pay down its debts, according to a person familiar with the deal.
Glasenberg has long had strong connections in Russia, with some rivals jokingly calling him "Uncle Vanya" after the famous play by Anton Chekhov and the diminutive form of the name Ivan.
Over several decades, Glencore has built a leading position in trade of Russian commodities from wheat to aluminium.
"We’ve been dealing in Russia for many years.
"We started getting very active since 1991-92," Glasenberg told Putin at a meeting in the Kremlin in January.
"We have a very active relationship in getting commodities out of Russia."
Glencore has an 8.75% stake in United Company Rusal, the largest aluminium producer outside China, and a deal to buy much of its output.
It is the second-largest wheat exporter from Russia, which has rapidly grown to become the world’s largest supplier of the grain.
And in addition to trading Rosneft’s oil, Glencore also has an offtake agreement and a 25% stake in mid-sized producer Russneft.
Glencore’s overall oil trading volume surged 39% in the first half of 2017, in part, thanks to the Rosneft deal.
"Given what they’ve now announced, it seems very clear that this was Ivan Glasenberg flexing the quality of his address book," said Gait.
"It’s very hard to see how many other people would be in a position to have those kind of discussions at that kind of level."