Commodities trader Glencore and Qatar’s sovereign wealth fund are together buying a 19.5% stake in Rosneft, Russia’s largest oil company, the Kremlin has announced.
Russian President Vladimir Putin said: “It is the largest privatization deal, the largest sale and acquisition in the global oil and gas sector in 2016.”
The surprise move sees Glencore and Qatar paying $11.3 billion for the stake in Rosneft, where BP already owns 19.75%.
However, the state will keep the controlling stake.
The long-planned sale is part of the Russian government’s efforts to sell some state assets to help balance the budget amid a two-year recession caused by a drop in global oil prices and Western sanctions.
Image source kremlin.ru
A deadline for the sale was missed, and speculation grew that Rosneft was struggling to find a buyer.
The deal also marks a turnaround for London-listed Glencore, which had seen a collapse in its share price amid a plan to sell assets and cut its huge debts.
Glencore’s shares have rebounded this year. The Qatar Investment Authority is one of the biggest investors in Glencore.
Speaking at a TV meeting with Rosneft CEO Igor Sechin, Vladimir Putin noted that the deal follows a rally in global oil prices after OPEC’s decision to cut production.
Russia, although not a member of OPEC, has agreed to cut its output in line with the cartel, and will attend a meeting with its member countries on December 10 to discuss specific details.
Igor Sechin said that Glencore and the Qatari fund will form a consortium and have equal stakes. He added that Rosneft had conducted talks with more than 30 potential bidders before striking the deal.
It had been thought that the US and EU sanctions imposed on Russia following the Ukraine conflict would deter huge investment in Russia, although companies were not explicitly prohibited from participating in the Rosneft sale.
Donald Trump’s election as US president has, however, raised speculation of a thaw in relations with Moscow.
In a statement, Glencore said that it would finance part of the deal by putting up €300 million of its own equity, with the rest financed by banks and by the Qatari sovereign fund. QIA had yet to make a statement.
Glencore stands to benefit by gaining access to Rosneft’s crude output, while Qatar will further establish itself as a major investor in some of the world’s biggest businesses.
Russian Economic Development Minister Alexei Ulyukayev has been detained after being charged with taking a bribe to endorse a state takeover.
According to the country’s Investigative Committee (SK), Alexei Ulyukayev received a payment of $2 million.
He is the highest-ranking Russian official held since the 1991 coup attempt in what was then the USSR.
The SK said Alexei Ulyukayev had “threatened” to create obstacles for Rosneft’s operations when it took a 50% stake in another state oil company, Bashneft.
According to SK spokeswoman Svetlana Petrenko, “Ulyukayev was caught red-handed”, receiving a $2 million bribe on November 14 for giving a favorable assessment of the Rosneft deal.
Image source kremlin.ru
The apparent sting operation came after months of electronic surveillance, including phone-tapping, officials said.
Alexei Ulyukayev’s arrest was big news on Russia’s state-run TV channels, under the headline “Battle against corruption”.
If found guilty, Alexei Ulyukayev could face a prison sentence of between eight and 15 years.
Alexei Ulyukayev, 60, was appointed economy minister in 2013. An economic liberal in the 1990s, he became deputy chairman of Russia’s central bank in 2004.
It was only in October that Rosneft, an oil giant controlled by the Russian government, bought 50% of Bashneft for 330 billion roubles ($5 billion). Bashneft itself was one of Russia’s largest state oil companies.
Russia is in the middle of an economic slump, largely because of the fall in crude oil prices, and had lined up several state companies for privatization to replenish state coffers.
The sell-off of Bashneft had been shelved in August, reportedly by the Kremlin because of a dispute over who would take it over.
The controversial privatization returned to the agenda early last month, apparently because of the government’s need to raise money.
Alexei Ulyukayev promised last month that the entire sum paid by Rosneft would go to the Russian budget.
Economic liberals had fiercely opposed the idea of a state-owned company acquiring the government’s share in another state oil firm. It was seen as a victory for Rosneft’s chief executive, Igor Sechin, who has long been a close adviser to President Vladimir Putin.
Vladimir Putin said last month that he had been “rather surprised” by the government’s earlier position to delay the deal as Rosneft was “strictly speaking” not a state company as part of it was owned by BP.
The Russian ruble went into free-fall in December 16 trading, falling repeatedly to hit record lows, despite the central bank’s dramatic decision to raise interest rates from 10.5% to 17%.
The rate rise was meant to strengthen the currency.
It helped it to 58 to the dollar early on Tuesday, but the dollar at one stage bought as many as 79 rubles.
The ruble has lost more than half its value against the dollar this year, hit by cheaper oil and Western sanctions.
Both of these have weakened the Russian economy.
Russia’s central bank has now pledged fresh further measures to try to stabilize its currency, with First Deputy Governor Sergei Shvetsov describing the situation as “critical”.
However, the Russian stock market was higher, with the main Micex index up 2% in afternoon trading.
Last week, Russia raised rates to 10.5% from 9.5%, a move that had little impact. The ruble’s slide this week was prompted by fears that the US was considering a fresh set of sanctions against the country for its support for separatists in Ukraine.
Russian oil giant Rosneft’s decision to issue 625 billion rubles ($9.9 billion) worth of bonds late last week at lower rates than Russian bonds has been blamed by some for exacerbating the currency’s decline.
However, Rosneft denied it was trying to dump rubles, saying “not a single ruble” would be used to buy foreign currency.
The chairwoman of the Russian central bank, Elvira Nabiullina, said the latest rate rise should curb inflation and encourage Russians to put more rubles into interest rate-bearing accounts.
However, she said she did not expect the ruble’s value to be immediately influenced by the rate rise.
“The ruble is currently undervalued according to all fundamental parameters and the state of the economy… and the current account,” she said.
“But for the ruble to return to its fundamental exchange rate it would take time.”
Russia’s central bank has previously tried unsuccessfully to stabilize the currency, buying rubles in the markets.
It has spent more than $70 billion supporting the ruble since the start of the year.
“This decision is aimed at limiting substantially increased rouble depreciation risks and inflation risks,” the central bank said in a statement.
Last week, the World Bank warned that Russia’s economy would shrink by at least 0.7% in 2015 if oil prices did not recover. It says an oil price of $70 a barrel would leave it with a fall of 1.5%.
Raising interest rates has its own risks, as more expensive borrowing can itself slow growth. But it may also stem the tide of money leaving the country.
Russia will appeal a Hague court decision ordering it to pay $50 billion in damages Yukos Oil Co. case, the biggest compensation package ordered to date.
Russia was told to pay the money to former shareholders in the now defunct oil producer Yukos.
The Hague court said Russian officials had manipulated the legal system to bankrupt Yukos, and jail its boss.
The Russian finance ministry said the ruling was “flawed”, “one-sided” and “politically biased.”
The ministry added that the Hague’s arbitration court “had no jurisdiction to consider the questions it was given”.
The claim was filed by a subsidiary for the financial holding company GML, once the biggest shareholder in Yukos Oil Co.
GML Executive Director Tim Osborne said: “The majority shareholders of Yukos Oil were left without compensation for the loss of their investment when Russia illegally expropriated Yukos.”
“It is a major step forward for the majority shareholders, who have been battling for over 10 years for this decision.”
However, in a statement, the Russian ministry said: “Because of substantial shortcomings in the rulings of the arbitration court, the Russian Federation will challenge the rulings of the arbitration court in Dutch courts and expects to obtain a fair result there.”
Mikhail Khodorkovsky built Yukos into Russia’s largest investor-owned oil company after the fall of the Soviet Union
GML’s lawyer Emmanuel Gaillard said: “This is an historic award. It is now judicially established that the Russian Federation’s actions were not a legitimate exercise in tax collection but, rather, were aimed at destroying Yukos and illegally expropriating its assets for the benefit of State instrumentalities Rosneft and Gazprom.”
Dr. Florian Otto from risk advisory company Maplecroft said that Russia will be hoping to win time and reduce publicity.
He said: “For Russia, paying the money is out of the question, as this could be construed as an acknowledgement that the seizing of Yukos’ assets was illegal – a viewpoint the Kremlin will never accept.
“The ruling does not come as a surprise to any of the parties involved, but the coincidental timing with the downing of flight MH17 certainly adds to the pressure Russia is currently exposed to.
“The case serves as a fresh reminder of state interference in business at a time when business confidence is already at a low point.”
Lawyers said that if Russia does not voluntarily accept the ruling, it can be forcibly enforced by shareholders seizing assets abroad.
Konstantin Lukoyanov of global law firm Linklaters said: “If it is accepted, it can be carried out voluntarily, or it will be implemented forcibly.
“In that case the seizure of assets abroad is possible. There have been several similar cases.”
Leonid Nevzlin, former deputy chairman of Yukos told a Moscow radio station: “I think shareholders are ready for the next stage, if Russia refuses to pay them, to search for and seize Russian assets all around the world.”
Yukos was disbanded in 2007 after filing for bankruptcy in 2006.
The company was formerly controlled by Mikhail Khodorkovsky, who was at one point Russia’s richest man.
Responding to the news, Mikhail Khordorkovsky said it was “fantastic” that shareholders were “being given chance to recover assets”.
Mikhail Khodorkovsky built Yukos into Russia’s largest investor-owned oil company after the fall of the Soviet Union.
He was arrested in 2003 and spent ten years in jail after being convicted of fraud and tax evasion but was pardoned last December.
The state-owned Rosneft bought the bulk of Yukos assets though auctions after the company, once the country’s largest oil producer, was declared bankrupt. Rosneft says all the deals were legal.
The US has announced it is increasing sanctions against Russia over Ukraine, targeting major banks, defense and energy companies.
Among those on the list are Gazprombank and Rosneft as well as senior officials in Russia and the self-declared rebel entities in eastern Ukraine.
The US has steadily escalated its sanctions against Russia over what it says is Moscow’s backing of the rebels – a claim denied by the Kremlin.
The EU also agreed to tighten its own sanctions against Russia.
The leaders of the 28-member bloc are currently holding talks in Brussels.
The new round of US sanctions announced by the US treasury department significantly expands previous penalties by Washington, which were limited to individuals in Russia and Ukraine and a number of companies.
President Barack Obama said the US sanctions were imposed because Russia had failed to fulfill it promises to de-escalate the crisis in Ukraine
This time they include the giant oil firm Rosneft and two major banks – Gazprombank and Vnesheconombank.
The weapons manufacturer Kalashnikov Concern is also on the list.
Two self-proclaimed rebel entities in eastern Ukraine – the Donetsk People’s Republic and the Luhansk People’s Republic – are also targeted.
Speaking in Washington, President Barack Obama said the sanctions were imposed because Russia had failed to fulfill it promises to de-escalate the crisis in Ukraine.
Barack Obama also stressed America’s support for Ukraine, saying that “Ukrainians deserve to forge their own destiny”.
The US penalties stop short of a complete disengagement with sectors of the Russian economy – a step that US officials said was being held in reserve in case Moscow launches a military invasion of Ukraine.
Russia denounced the US move. Deputy Foreign Minister Sergei Ryabkov said Russia would take measures “that will be felt quite painfully in Washington”, Interfax news agency reports.
In Ukraine itself, heavy fighting continued in the east.
Ukrainian officials said 11 soldiers died in the space of 24 hours. The number of casualties among pro-Russian separatists was not immediately known.