Current GLEN:LN Stock Info

Rosneft sale relieves budget pressures

Russia has sold a 19.5% stake in Rosneft, the world’s largest-listed oil company and a state-controlled asset, for €10.5 billion ($11.3 billion) President Vladimir Putin announced on television with Rosneft CEO Igor Sechin. The stake was sold to a consortium made up of Swiss mining company and commodity trader Glencore (ticker: GLEN) and Qatar Investment Authority, itself Glencore’s largest shareholder.

The Russian government will retain a controlling stake in the company, which is also partly owned by U.K. oil major BP (ticker: BP).

The deal could ease concerns about budget funding through the next Russian presidential elections in spring 2018, Senior Partner at Macro Advisory Chris Weafer told The Wall Street Journal. Russia had been discussing a stake sale in Rosneft for some time as the country looks to privatize the oil and gas sector, but had its hand forced by low oil prices and a two-year recession.

Russia has looked to China for most of its financing since the implementation of sanctions from the West following Russia’s involvement in the annexation of Crimea from Ukraine. Chinese and Indian state-owned energy companies were seen by analysts as the likely buyers for the Rosneft stake, making the sale to Glencore something of a surprise.

“It’s diversification in political relationships and investment,” Weafer said. “It shows that there is more than one buyer in town and that Russia doesn’t have to just sell cheaply to China or India.”

Glencore on a different page

Despite Putin’s assurance that the deal was complete, Glencore’s press release indicated the company was in “final-stage negotiations.”

Glencore said in its statement that it would commit €300 million in equity, with the rest coming from the Qatar Investment Authority and bank financing. The structure of the deal is designed to limit the company’s exposure to Rosneft, it said in the press release. Other than a 0.54% indirect equity interest in the company, Glencore will “not have any economic exposure to its interest in the shares.”

“Limited liability structure fully ring-fenced and non-recourse to Glencore apart from its €300 million equity contribution and the provision of certain guarantees, the risks of which would be fully indemnified by appropriate financial institutions,” Glencore said.

The U.S. is reviewing the deal to determine if it violates Western sanctions, according to Amos Hochstein, U.S. special envoy for international energy affairs.

“Clearly this is not what we were hoping for when we implemented sanctions,” he said in an interview on Bloomberg. “They are selling this partly because of the cash crunch, so you can look at it as the sanctions are actually working.”

The appears to be a positive sign for Glencore, which suspended its dividend and began focusing on selling assets to reduce debt last year following a plunge in the company’s stock price. The mining company said last week that it plans to reinstate its dividend next year.

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