ROSNEFT & MORGAN STANLEY: NO GUARANTEES
Morgan Stanley 's deal to sell an oil trading business to Rosneft , the state-owned Russian oil group, is close to collapse amid the profound chill in relations between Russia and the US.
Morgan Stanley said on Friday: "In the current environment there can be no assurance that the transaction will close, especially in light of the existing contractual requirement that all necessary approvals be received by year end."
"We are continuing to operate the business in the ordinary course, and should the deal not close, we would consider a variety of options that take into account the interests of our shareholders, clients and employees."
People familiar with the matter said the prospects for a deal were all but dead and that rival bidders were considering a move for the assets.
Struck last December, before Russia's incursion into Ukraine caused relations with the west to plunge, the sale was an attempt by Morgan Stanley to dispose of a non-core business, which is being squeezed by US regulations.
The deal is not directly targeted by US-imposed sanctions, but Rosneft and its Kremlin-linked chief executive Igor Sechin have been affected.
The Committee on Foreign Investment in the United States (Cfius), an inter-governmental group whose members include the defence secretary and secretary of state, has a veto right over the deal.
But the deal expires at the end of the year if it has not gained the necessary regulatory approvals.
Cfius has not given a decision on the sale but people familiar with the matter suggested it would be in the interests of both Washington and Morgan Stanley for the deal to expire – a quieter alternative to a politically sensitive approval or veto.
Rosneft, meanwhile, has been hit by US sanctions, which restrict the company's ability to raise money in dollars. Analysts and rival traders say that makes the Morgan Stanley business unviable for Rosneft.
Oil trading is highly capital intensive and traders rely heavily on access to bank funding. But western banks have stepped back from lending to Rosneft since the US sanctions were imposed in July.
Morgan Stanley has been trying to sell the business for several years but previous attempts, including talks with Qatar's sovereign wealth fund, foundered.
However, people in the industry said several potential bidders had expressed renewed interest after some oil grades went into "contango", meaning prices for later delivery are higher than near-term prices. That condition is necessary for the division to make strong profits.
Rosneft, which has consistently claimed that work on the deal was proceeding as normal, declined to comment.
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