9/09/2017

Rosneft sells 14% bet to China’s CEFC in biggest ever Russo-Chinese contract


Rosneft sells 14% bet to China’s CEFC in biggest ever Russo-Chinese contract

 Russia’s turn to the east got more serious on August 8, after Russia’s top oil company Rosneft announced the largest ever asset by China into Russia in a deal to sell a 14.16% stake in Rosneft to China Energy Company (CEFC) for $9.1bn, Reuters reports.

The Chinese company is buying the shares from a consortium of Glencore and the Qatar Investment Authority (QIA) that participated in the murky privatization of a 19.5% stake of Rosneft last December. Billed as a historic privatization deal, it later transpired the deal was probably more of a loan by Russia’s friends to get the government through a very difficult year when the state didn't have the money to cover the budget deficit.

Glencore and QIA will retain stakes of 0.5% and 4.7% in Rosneft respectively. The deal has been on the card for several months. First there were reports that Russia could buy back the Rosneft stake from Qatar. Then reports surfaced in August that China was in talks to buy a stake.

On the face of it Igor Sechin, the CEO of both the oil company and its holding company - and a close associate of President Vladimir Putin - announced he had pulled off a deal to sell the stake to oil trade Glencore and the Qatar sovereign wealth fund, raising €10.2bn in the process in December.

Italy’s Intesa Sanpaolo Bank came up with the financing, but only provided €5.2bn, the bank said on January 2 – half the deal’s reported value. Subsequently the bank said that it was having problems raising the money as a syndication deal it organized collapsed in August thanks to the new US sanctions. Intesa said its €5.2bn loan was reimbursed on August 8 following the CEFC deal.

However, it has become increasingly clear that the December privatisation was little more than a complicated loan mechanism. That probably means that much of the money “raised” by the privatisation has still not been received by the state. The sale of the stake to CEFC, however, is the real deal and will bring in real cash for the budget.

"The implication is that the [privatisation] was essentially a loan to the Russian government that was struggling to finance its 2016 fiscal budget, and that Russia is obliged to repay the loan," Aton Equity commented on June 8 when speculation on a sale of a stake to China first came up.

CEFC is Beijing’s go-to state energy company that represents China’s interests in the energy sector. It has grown fast in recent years and become a key partner for Russia.

Glencore said in a statement that CEFC will buy shares at a premium of around 16% to the 30-day volume weighted average price of Rosneft shares without naming the price. A CEFC spokesman said the company would pay $9.1bn, according to Reuters, which is exactly $1bn more than a 14.16% stake should be worth given Rosneft’s current market valuation of $57bn.

Sechin told reporters CEFC would get access to Rosneft’s oil fields and petrochemical projects in East Siberia to guarantee bigger synergies, following the announcement of the Chinese deal. CEFC said the deal would give it annual equity oil production of 42mn tonnes (840,000 barrels per day) and access to oil and gas reserves of 2.67bn tonnes (20bn barrels), according to Reuters.



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