ROSNEFT SOLD: €10.5 BLN
FT - Glencore and the sovereign wealth fund of Qatar are to take a 19.5 per cent stake in Russian oil company Rosneft in a surprise €10.5bn deal that marks a triumph for President Vladimir Putin.
The deal, which was announced by Mr Putin's press secretary on Wednesday evening, is the largest under a privatisation programme launched by the cash-strapped Russian government at the start of the year and one of the largest ever investments into the country.
It comes in spite of US and EU financial and technological sanctions against Rosneft, which it was thought would deter western companies' participation in the Russian oil producer's share sale, even though they do not prohibit it.
Mr Putin congratulated Igor Sechin, the powerful chief executive of Rosneft, on the deal, calling it a "very good result".
"I want to thank all of you, all of your colleagues who worked on this, for this result," Mr Putin said in a meeting with Mr Sechin. The Russian government will retain a majority stake in Rosneft, while UK oil company BP holds a 19.75 per cent stake.
Mr Sechin told Mr Putin that the deal would be financed by the investors' own resources, as well as through a financing package organised by "one of the largest European banks".
For Glencore, the deal represents an opportunity to reassert itself as the dominant trader of Russian oil after it was usurped by arch-rival Trafiguralast year, potentially giving its trading arm access to millions of barrels of Rosneft's oil production.
Oil trading is a fiercely competitive industry with wafer-thin margins. Traders need access to huge volumes of oil to make significant profits.
Mr Sechin said the deal included an "offtake" oil supply contract with Glencore, as well as the creation of a joint venture with the Swiss-based company and Qatar to invest in Russian and international projects.
This marks a return to deal-making for Glencore boss Ivan Glasenberg. Since the autumn of 2015 he has been selling assets to pay down debts. Last week, he declared the company's debt reduction programme was almost at an end and said the company would pay a $1bn dividend in 2017.
Mr Glasenberg has promised investors not to let the company's net debt rise to more than twice the level of its underlying earnings.
It a statement Glencore, already the world's second biggest independent oil trader, said it was putting the final touches to a 50-50 joint venture consortium with the Qatar Investment Authority.
Under its terms, Glencore will commit just €300m in equity with the rest of the money being provided by QIA and non-recourse bank financing arranged by a European bank, understood to be Intesa Sanpaolo.
As part of the agreement, Glencore has also agreed a five-year supply agreement with Rosneft. This will see the Russian company supply 220,000 barrels a day to Glencore's oil trading arm.
Glencore said there could also be "additional opportunities, through a strategic partnership for further cooperation, including infrastructure, logistics and global trading."
QIA is also Glencore's biggest shareholder with a 9 per cent stake. Glencore's last big oil deal was in 2014 when it paid $1.4bn for Chad-focused Caracal Energy.
Mr Sechin said the sale price represented a 5 per cent discount to the company's share price on Tuesday.
Qatar's sovereign wealth fund could not be immediately reached for comment.
Michael Moynihan, research director for Russia at consultants Wood Mackenzie said: "Rosneft will be able to expand its access to global oil markets through this deal with a major oil-trading company."
This is the latest in a string of deals spearheaded by Mr Sechin, following the acquisition of midsized Russian oil producer Bashneft in November after an acrimonious internal battle within the Russian elites, the $13bn acquisition of an Indian port and refining company, and a prospective investment into a major Egyptian gasfield.
"The deal is not just a portfolio investment, but a strategic one," Mr Sechin said.
The sale of a minority stake in Rosneft had been widely seen as an unattractive investment given low oil prices and the Russian government's control of the company.
An internal assessment by Rosneft of market interest in the deal at the start of the year estimated that the company would be able to sell just $1bn-$2bn worth of its shares, according to a person familiar with the matter. Until Wednesday evening most investors assumed Rosneft would buy its own shares from its parent company in order to meet a government-imposed deadline of mid-December to complete the deal.
But the recent rally in oil prices on the back of a deal to cut production by Opec, the oil producing countries' cartel and non-Opec members led by Russia, may have made the investment more attractive, Mr Putin noted.
Mr Sechin highlighted that Rosneft had made commitment to paying 35 per cent of its profits in dividends.
Mr Putin said that the deal would represent a major influx of foreign currency into Russia, and instructed the central bank to find a way of mitigating its impact on the rouble.
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