By Sarah McFarlane in London and Summer Said in Dubai
Russia's sale of one-fifth of its state-owned oil company to
Qatar and commodities giant Glencore PLC last year had an unusual
provision: Moscow and Doha agreed Russia would buy a stake back,
people familiar with the matter said.
Russian President Vladimir Putin hailed the EUR10.2 billion
($11.5 billion) sale of the PAO Rosneft stake in December as a sign
of investor confidence in his country. But the people with
knowledge of the deal say it functioned as an emergency loan to
help Moscow through a budget squeeze.
Moscow agreed with Qatar that Russia would buy back at least a
portion of the stake from the rich Persian Gulf emirate, the people
said. The Qatar Investment Authority and Glencore, the Swiss-based
commodities giant, formed a partnership to buy the 19.5% stake in
Russia's energy jewel at a time when Mr. Putin's government needed
cash.
The people with knowledge of the deal say the buyback
arrangement was negotiated with involvement from Mr. Putin and the
emir of Qatar, Sheikh Tamim bin Hamad Al Thani. Russia and Qatar
saw it as an opportunity to build a bridge between countries that
had taken up opposite sides in the Syrian civil war, the people
familiar said. One of the people said the buyback would happen in
the next 10 years.
Kremlin spokesman Dmitry Peskov said he didn't agree with the
characterization of the deal as an emergency loan. He didn't
respond to further questions.
Glencore and the Qatar Investment Authority said the deal's
contract contained no right for Russia to buy back Rosneft shares
from the consortium they created.
"The transaction did not include an option or agreement for
Rosneft, Rosneftegaz or the Russian state to buy the stake or parts
of the stake acquired by the consortium," Glencore said.
"The consortium alone controls the future ownership of these
shares," the Qatar Investment Authority said through a London
public-relations firm.
Rosneft, the world's largest listed oil producer, is traded
publicly in Moscow, but it isn't easy to buy and sell large pieces
of the company because it remains majority-owned by the Russian
state and is an instrument of economic power for Mr. Putin.
The people familiar with the deal said a time-limited structure
and a buyback agreement for the deal worked for both Qatar and
Russia.
Qatar wanted its Rosneft stake to be temporary, the people said.
The emirate believes it will profit from selling the shares back to
Russia at a later date, the people said, betting that oil prices
will rise and push up Rosneft's share price. Qatar saw the
political benefits of giving Russia access to quick cash as a sort
of loan to address a budget deficit that had widened due to lower
oil prices, the people said.
After the deal, a range of talks opened between Russian and
Qatari businesses on a scale not seen before, Russian news agencies
have reported.
For Russia, a temporary deal was also preferred by Igor Sechin,
a Putin confidante who runs Rosneft and its parent company
Rosneftegaz, one of the people said.
Until the deal with Qatar and Glencore, Mr. Sechin had publicly
opposed privatizing any more of Rosneft, which is already 20% owned
by BP PLC. That ownership slice came about when BP sold its share
of Russian oil company TNK-BP in exchange for the piece of Rosneft,
and cash.
According to people familiar with the matter, Mr. Sechin
approached Glencore about a deal under pressure from Mr. Putin, who
needed to raise cash during a 2016 budget crunch, when oil prices
fell to 12-year lows. Russia's federal budget relies on the
oil-and-gas industry for about a third of its revenue. Glencore
executives said the stake was too big for it alone, the people
said, so the company brought in its biggest investor, the Qatar
Investment Authority.
When the deal was announced in December, Mr. Putin denied it was
done "because we lack money for particular budget expenditure
items." He said at a news conference that Glencore and Qatar would
"improve the management quality" of Rosneft. The deal was called
the largest-ever foreign investment in a Russian company.
Shares in Rosneft rallied around 20% higher in the four weeks
following the deal's announcement on Dec. 7. Those gains have been
erased, with the share price down around 25% since the start of the
year.
Glencore shares rose after the announcement, partly because it
gives the company access to trade 220,000 barrels a day of Rosneft
crude for five years--a lucrative piece of Russian market
share.
Subsequent public disclosures have revealed parts of the deal's
complex structure.
Glencore says it only put up EUR300 million ($338 million) in
equity for its stake, not the more than EUR5 billion implied by
taking half a 19.5% piece of Rosneft valued at more than EUR10
billion. Qatar's investment totaled only about EUR2.5 billion,
Glencore said.
In an unusual arrangement, the rest of the financing was
provided by Russian banks, which contributed EUR2.2 billion, and
Italian bank Intesa Sanpaolo SpA, which lent EUR5.2 billion to the
Glencore-Qatar consortium, according to a Dec. 10 new release
issued by Glencore. The financing is "non-recourse," Glencore said
in the release, meaning the lenders couldn't pursue Glencore and
the Qatar Investment Authority if they weren't repaid.
An Intesa spokesman said the loan to the Qatar/Glencore
partnership "is covered by a robust package of guarantees." Intesa
is trying to spread the risk of its loan by syndicating it to other
banks, but a person familiar with the matter said the bank hasn't
yet found willing banks.
Under the deal, the Rosneft shares aren't held directly by
Glencore and Qatar but by a U.K. limited liability partnership,
according to British corporate records.
If there is an option for Rosneftegas or Rosneft to buy back a
stake, then such a LLP entity is exempt from having to pay
capital-gains taxes, said Sergey Vakhrameev, a Zurich-based
portfolio manager of GL Asset Management, which invests on behalf
of private clients, family offices and funds.
Mr. Vakhrameev said he studied the corporate records of the deal
as part of his work focusing on Russian companies. He said he had
no knowledge that Rosneft plans to buy the shares back.
"The structure of the deal is unusual," said Mr. Vakhrameev,
who, among other aspects, referred to the several limited-liability
partnerships set up in the U.K., along with entities in Singapore,
that apparently will facilitate the original deal. "It is
nontransparent."
After the deal was announced, Mr. Putin awarded one of Russia's
top honors for foreigners--the Order of Friendship--to Qatar
Investment Authority's chief executive, Sheikh Abdullah bin
Mohammed bin Saud Al-Thani, Intesa's chief executive, Carlo
Messina, and Glencore's chief executive, Ivan Glasenberg.
Giovanni Legorano, James Marson and Scott Patterson contributed
to this article.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Summer
Said at summer.said@wsj.com
(END) Dow Jones Newswires
June 07, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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