“I would like to congratulate you on the completion of the privatization transaction for the sale of a large stake in our leading oil and gas company Rosneft. The transaction was completed on an upward trend in oil prices. Accordingly, this is reflected in the value of the company itself. In this sense, the time is very good, the total volume of the transaction is very significant,” the head of state told Sechin.
The buyer is reportedly a consortium of Glencore and a Qatari sovereign wealth fund.
Putin emphasized that this is “the largest privatization deal in the oil and gas sector in the world in 2016.”
In turn, the head of the company noted that as a result of a whole series of transactions, 49% of Rosneft were privatized, which made it possible to gain almost $34 billion. “This is almost four times higher than all privatizations in the oil and gas sector of Russia. And this transaction is also significant for the global oil sector and, as you correctly said, the largest asset sale transaction in 2016,” added Igor Sechin.
He also expressed gratitude to the President of Russia and stated that, taking into account the difficult foreign economic situation and extremely short deadlines, the deal became possible only thanks to the personal participation of Vladimir Putin.
“At the same time, the controlling stake in the company itself remains in the hands of the Russian state,” the president emphasized.
Sechin noted that, despite the sale of 19.5% of Rosneft shares, the value of the company’s state-owned stake will increase by 80 billion rubles.
The structure of the deal itself, as reported by RIA Novosti, will probably be disclosed after December 15, when the budget receives funds from the sale of the company's shares. However, it is already known that the consortium participants - Glencore and the Qatari sovereign fund - have equal shares (50% of the volume of acquired shares). In addition, the deal implies a contract with Glencore for the supply of hydrocarbons and the creation of a joint production enterprise with the consortium, and for its implementation a loan was attracted from a large European bank.
Putin also instructed the head of Rosneft to work out a scheme for converting a large volume of currency that will flow into Russia. Thus, at the current exchange rate, the transaction amount is more than 717 billion rubles.
Reaction of oil and ruble
Based on this news, the exchange rate of the ruble against the dollar and euro, according to the Moscow Exchange, showed a slight increase. By 21:33 Moscow time, the dollar exchange rate decreased by 0.31 rubles to 63.57 rubles, the euro exchange rate decreased by 0.09 rubles to 68.34 rubles.
In turn, the price of a barrel of Brent oil added about $0.3 to $53.6.
"Unexpected Deal"
In an interview with RT, the director of the Energy Development Fund, Sergei Pikin, noted that despite the fact that negotiations on the sale of part of the shares of Rosneft had been going on for a long time, the deal with this particular buyer came as a surprise to the market.
“Until this moment, everyone thought that Rosneft would buy back shares on its own and raise money for this. But in fact, recently negotiations have been held with companies around the world - both Asian and European. As a result, this deal with Glencore, which is a trader, and Qatar’s sovereign fund came as a surprise to the market,” said the energy expert.
He emphasized that the fact that it happened is certainly good for the Russian budget. “This is an “external” deal, and not Rosneft buying itself. And this is good, because potential dividends are preserved, which can be transferred to the budget. This is beneficial for the budget, and this is exactly what was said today,” added Sergei Pikin.
Let us recall that in early November the Russian government published a directive on the sale of 19.5% of Rosneftegaz shares by December 5. The money must be transferred to the federal budget no later than December 31.
The head of Rosneft, Igor Sechin, informed Russian President Vladimir Putin about the completion of the deal to privatize the company. The press secretary of the head of state, Dmitry Peskov, told reporters about this on Wednesday, December 7.
According to him, a consortium of Glencore companies and the sovereign fund of Qatar became strategic investors in the privatization of shares, TASS reports. Consortium participants have equal shares of 50%.
“I really hope that the arrival of new investors - this is a consortium of the Qatari state fund and the world's largest international trading company Glencore - I hope that their arrival in the management bodies will improve corporate procedures, the transparency of the company and, accordingly, will ultimately lead to growth of capitalization. At the same time, the controlling stake of the company itself remains in the hands of the Russian state - more than 50 percent," the president noted.
Putin believes that the privatization deal was completed on an upward trend, at a good time, and that this should not lead to fluctuations in the ruble on the foreign exchange market.
The country's budget will receive €10.5 billion from the privatization of 19.5% of Rosneft shares.
The head of state ordered the gradual conversion of privatization funds into rubles in order to avoid exchange rate fluctuations. “The President noted that in the coming days a significant amount of foreign currency will be coming into the country, and in order to avoid any exchange rate fluctuations, it is necessary to provide for an appropriate step-by-step conversion system,” Peskov said.
“To this end, the president instructed Sechin to work out an appropriate scheme of actions for conversion with the government, the Ministry of Finance and the Central Bank,” said the press secretary of the Russian leader.
Earlier on Wednesday, Rosneft announced the completion of the placement of ten-year exchange-traded bonds totaling 600 billion rubles.
The company's message stated that the securities were placed in full by open subscription and paid for by bank transfer. At the same time, no major transactions, as well as transactions in which the issuer would be interested, were made during the placement of bonds.
At the beginning of this November, the Russian government published a directive, according to which Rosneftegaz must sell 19.5% of Rosneft shares by December 5 for at least 710.847 billion rubles. No later than December 15, settlements with the buyer must be completed, and before December 31, the money received from the transaction must be transferred to the federal budget.
On Monday, December 5, it became known that Rosneft collected applications for participation in the placement of its bonds in the amount of 600 billion rubles in half an hour, writes RBC. According to sources of the publication, the collection of investor proposals for 10-year NK securities took place without prior notification of potential buyers; applications were accepted from 17:00 to 17:30 Moscow time.
14:35 — REGNUM The deal to sell a 19.5% stake in Rosneft worth €10.5 billion is in its final stages. The Swiss Glencore and the Qatari sovereign wealth fund acquired a stake in the Russian company. Leading analyst of the National Energy Security Fund (NESF) and lecturer at the Financial University under the Government of the Russian Federation Igor Yushkov in conversation with a correspondent IA REGNUM shared his opinion on why such investors were chosen and what role the personal interests of the head of Rosneft could play in this event Igor Sechin.
Ivan Shilov © IA REGNUM
“Here I am of the opinion that the publication against which Rosneft is suing is that Sechin asked Putin not to allow BP (British Petroleum company - editor's note) to buy a trial stake so that it would not increase the blocking stake, which in fact in fact this is true. At least, even if Sechin did not ask, then at least his strategy was that it was necessary to divide all these packages that belong to foreign investors, and in general, to third-party investors into shares that would be smaller than the blocking package. In order not to get some independent player on the board, so that they do not have a representative board of directors, in fact, something significant, and so that they cannot influence the management of the company, so that he (Sechin - editor's note) ) still retained everything in his hands, all the control levers"“, the expert explained.
Why the choice fell on such a consortium is indeed strange, notes Yushkov. In his opinion, one of the conditions was that any investor who invested, firstly, had to take the position that he would not receive any management of the company and would not be able to influence decisions. Secondly, the potential investor had to provide at least 700 billion rubles in dollars or euros. Otherwise, the head of Rosneft, Igor Sechin, could be criticized, and even his relationship with Vladimir Putin could get hurt. Therefore, they decided to conclude a deal with those investors who agreed to these conditions, suggests the leading analyst of the FNEB.
“Although I do not rule out that in fact there were some complex agreements there. It's not for nothing that Glencore is involved in the deal. This company became the largest buyer among traders, the largest buyer of oil from Rusneft. There was a large, very long-term contract. Among other things, they, it turns out, entered in a comprehensive manner: they bought a share from Rosneft and, on the other hand, entered into another long-term agreement on oil supplies. It’s unlikely that anyone else here would agree to such a complex deal.”, says the expert.
Let us recall that Chinese, Indian and Kazakh investors were previously named among the contenders for the purchase of Rosneft shares. The option was even considered that Rosneft itself would buy back its own shares with the possibility of further resale. Yushkov notes that regarding the choice of investors, Sechin was probably trying to somehow balance their participation. Rosneft sold shares in East Siberian fields to representatives of India. As for the Chinese, they also have long-term contracts. And the Qataris and Glencore were given a share in Rosneft itself.
Igor Yushkov also suggested this option: “Maybe, on the other hand, this is a necessary measure. Because, I think, Sechin himself wanted to buy out oil and gas shares in Rosneft. In the future, he would dispose of them, and they would remain under his greater control. I think that here, in many ways, it was the president’s requirement to sell to foreign investors and get money into the budget.”
The fact is that in the story of the privatization of Bashneft by Rosneft, Sechin somehow managed to outplay the government. Even despite the initial statement of the country's president that state-owned companies should not privatize other state-owned companies, privatization according to the plan conceived by Sechin took place. In this case, the analyst says, it was probably not possible to convince Putin.
At the same time, an expert from the National Energy Security Fund believes that an even more complex plan to take over Rosneft shares is possible: “I do not rule out that in a year we will see that a stake in, for example, this Qatari fund will suddenly end up in the hands of some Russian state company. That is, not even a state company, but a private Russian company. For example, the same Independent Oil Company affiliated with Rosneft by Khudoinatov, the former head of Rosneft. It is quite possible that the Qatari fund and even Glencore will be a temporary holder of these shares.”
As for the final completion of the transaction and the receipt of funds into the budget, the expert said that, most likely, the sale will be carried out before the end of the year. Because the money is already included in the budget. However, there may be a very complex scheme for transferring this money to the budget. According to Vladimir Putin, exchange transactions need to be carried out in several tranches. The transfer to the budget should be in rubles, and the money from the sale of Rosneftegaz will be received in euros. After which they must be converted somehow. It is quite possible that this will happen throughout 2017.
Let us recall that today, December 8, Russian President Vladimir Putin highly appreciated the rapid privatization of Rosneft. The head of state congratulated Igor Sechin, calling the deal for the sale of a 19.5 percent stake the largest on the world energy market this year. Putin also noted that as a result of the deal, a volume of euros will soon flow into Russia, so Sechin must develop measures for a gradual conversion so as not to collapse the foreign exchange market.
Igor Sechin said that the cost of the transaction turned out to be the maximum possible in modern conditions - €10.5 billion. As noted, the Cabinet of Ministers has already prepared all the necessary documents to formalize the purchase. The Federal Antimonopoly Service will soon receive a request to approve the transaction.
Background
The history of privatization in Russia began with the so-called “voucher” sale of state-owned enterprises in 1992. In 1995, auctions were held to replenish the treasury through loans secured by government stakes in several large companies, such as Yukos and Sibneft. The government did not repay the loans, so the enterprises became the property of the creditors. In the second half of the 2000s, the natural monopolist in the field of energy generation and transportation, RAO UES, was partially privatized. In recent years, due to the aggravation of contradictions with the United States and the imposition of sanctions, the Russian authorities are actively looking for new sources of income, including through the sale of state assets.
The sale of a 19.5% stake in Rosneft came as a shock to the West and the representatives of its interests. Liberal analysts believed that anti-Russian sanctions would ensure a reliable credit and investment blockade of our country, as a result of which Rosneft would be forced to buy back its shares itself.
Various calculations have even been published on how much the ruble will weaken if Rosneft buys back its shares through loans (including from the state), and the federal budget uses the funds received to replenish the Reserve Fund, purchasing currency for this on the stock exchange.
These and many other speculations have failed, and their authors try not to remember them, spending, as after Trump’s victory, a significant amount of time erasing their posts on social networks.
“Putin has outplayed everyone,” writes the Wall Street Journal, which stands out even from the Western media for its tough anti-Russian position. Called by the Russian President “the largest privatization deal in the oil and gas sector in the world in 2016,” the sale of a 19.5% stake in Rosneft on December 7 broke the sanctions blockade and brought the budget 10.5 billion euros. At the same time, Rosneft's dividends will now amount to 35%, and such a change in the dividend policy is part of an integral privatization deal.
Initially, the minimum selling price for the stake was set at 500 billion rubles. According to the amendments to the law “On the Federal Budget” for 2016, adopted in the State Duma and approved by the president, the state was supposed to receive 703.5 billion from the sale of Rosneft shares. In fact, the budget will receive 710.8 billion; investor premium from current stock exchange quotes amounted to the minimum 5% for such transactions, which seems to be an outstanding success of Rosneft management, which was looking for investors (negotiations with more than 30 potential buyers are reported) and “ramming” them.
It is fundamentally important that the transaction is of a strategic nature and increases the value of the company, qualitatively expanding and consolidating its capabilities with partners reliably connected with it.
On the one hand, the largest commodity trader Glencore, which overcame serious financial problems about a year ago, unlike other potential partners, does not limit Rosneft to a specific region, but ensures the global scale of its operations. The increase in the volume of oil sold through it (more than doubling) is complemented by the coordination of positions in the market, which is very valuable for Rosneft. And lending to Glencore by one of the largest European banks indirectly returns Rosneft to Western financial markets.
One of the world's largest sovereign funds, Qatar Investment Authority, is showing interest in oil production projects in Russia and may well follow the example of BP, which, having become the largest minority shareholder of Rosneft, began actively investing in the development of its Siberian fields. It is fundamentally important that Qatar’s example can be followed by other investors from the Gulf countries, who very jealously monitor each other’s activities.
The geopolitical aspect of the operation is no less important: in the Middle East crisis, the Qatari authorities, focusing on the United States, were traditional opponents of Russia and its allies, and sometimes extremely tough ones. The change in the American administration deprived them, like many other US satellites around the world, of global cover and, perhaps, forced them to rethink, even partially, their position. The acquisition of the Rosneft stake objectively connects the Qatari authorities with Russia and, at a minimum, even if their previous geopolitical aspirations are preserved, it very seriously limits their freedom of hand. In general, cooperation with Qatar can have an impact on its entire position both in the Near and Middle East and in Africa, where its expansion is a very noticeable deterrent for China.
It is no coincidence that only as a result of the announcement of the deal, Rosneft’s quotes jumped by 5%, setting a record, and the market capitalization for the first time exceeded 4 trillion rubles. At the same time, the value of the state block of shares increased by $1.3 billion, and the total effect of the operation for the state (including direct revenues to the budget from the privatization of Bashneft $5.16 billion and the Rosneft stake $11.12 billion, as well as the additional capitalization of the state block shares of Rosneft due to the synergistic effect after the merger with Bashneft of $1.25 billion, additional capitalization of the state stake after the announcement of the sale of Rosneft shares of $1.33 billion and attracting first-class global investors) amounted to about $19 billion. However, with From a purely commercial point of view, the deal seems beneficial for Russia. The likely use of Rosneft shares as collateral for the transaction objectively interests both investors in maintaining and increasing quotes. At the same time, the state retains a controlling stake, and in general the structure of share capital ensures a harmonious balance of interests.
In general, Rosneft management has turned the privatization of its stake from a traditional portfolio transaction into a deep and multi-level strategic operation, the positive consequences of which for Russia will manifest themselves for a long time, and sometimes in very unexpected ways.
The head of Rosneft, Igor Sechin, reported to President Vladimir Putin on the sale of a 19.5% stake in the company for €10.5 billion. The buyers were Glencore and the sovereign fund Qatar Investment Authority, which will each receive 9.75% of Rosneft.
Rosneft Chief Executive Officer Igor Sechin and Russian President Vladimir Putin. February 2015 (Photo: Mikhail Klimentyev/press service of the President of the Russian Federation/TASS)
$17.5 billion in two months
Rosneft Chief Executive Officer Igor Sechin reported to President Vladimir Putin in the Kremlin on the completion of the deal to privatize the company, according to the Kremlin website. The budget will receive €10.5 billion from privatization (RUB 721.25 billion at the Central Bank exchange rate as of December 7), Putin said. And together with the controlling stake in Bashneft, which Rosneft bought on October 12 for $5.3 billion, - $17.5 billion, he added.
“Even in the first part, this is the largest privatization deal, the largest sale and acquisition in the oil and gas sector in the world over the past 2016,” Putin emphasized.
The buyers of 19.5% of Rosneft were a consortium of the world's largest trading company Glencore and the sovereign Qatar Investment Authority (as of June, it had $335 billion under management). “I hope that their arrival in the management bodies will improve corporate procedures, the transparency of the company and, accordingly, will ultimately lead to an increase in capitalization,” the president noted. Glencore and Qatar Investment Authority will each receive 50% in this consortium, Sechin clarified (quoted by RIA Novosti). That is, the effective share of each buyer is 9.75%. This is the third largest stake after the state-owned Rosneftegaz (its share will decrease from 69.5 to 50% plus three shares) and BP (19.75%).
“The deal was made during an upward trend in the price of oil, and accordingly, this is reflected in the value of the company itself,” Putin is sure. Just on November 30, the OPEC countries agreed to reduce production for the first time in eight years, in anticipation of this decision and after its adoption, oil quotations exceeded $50 per barrel On Wednesday, Brent crude traded at $53.15 per barrel.
Sechin said that in preparation for this transaction, Rosneft held negotiations with more than 30 potential investors - companies, funds, professional investors, sovereign funds, financial institutions in Europe, America, the Middle East, and countries in the Asia-Pacific region.
Sechin and Rosneft’s first vice president for economics and finance, Pavel Fedorov, have been on business trips abroad over the past few weeks, meeting with potential bidders for 19.5% of Rosneft. An acquaintance of the top managers told RBC about this and confirmed it with a federal official. That is why the head of Rosneft was not present at the announcement of Putin’s Address to the Federal Assembly on December 1 in the Kremlin (representatives of large businesses are usually invited there), said one of RBC’s interlocutors.
And the day before, on Tuesday, the head of Glencore, Ivan Glasenberg, arrived in Moscow for a Sberbank conference on metallurgy. Then he refused to communicate with an RBC correspondent, saying that he was in a hurry (“I’m in a rush,” Glasenberg said). Glencore only announced in early December that it had completed a global sale of assets worth $4.7 billion to reduce debt ( should fall to $16.5-17.5 billion by the end of the year.) At the time, Glasenberg said the company was ready to make purchases again.
Sechin assured that this deal is “not just a portfolio investment,” but a “strategic one”: the company, together with the consortium members, will create a joint venture in the field of oil production both in Russia and in the world and will “coordinate positions in the markets.” In addition, this deal includes an oil supply contract with Glencore, he added.
“Taking into account the most difficult foreign economic situation and the extremely tight deadlines for such projects, I report that such a transaction became possible only thanks to your personal contribution, the support that we received from you during this work,” the head of Rosneft said, addressing Putin. According to the government order, published in early November, the deal to sell 19.5% of Rosneft was to be completed by December 5, and by December 15, the money from the deal should go to the budget.
Rosneft spokesman Mikhail Leontyev declined to comment on the terms of the deal. Its amount (721.25 billion rubles) turned out to be higher than the minimum price specified in the government order - 710.8 billion rubles. But according to the results of trading on Wednesday, December 7, on the Moscow Exchange, 19.5% of Rosneft was worth even more - 736.2 billion rubles. The discount to the market price of Rosneft on the stock exchange on December 6 was only 5%, Sechin noted.
Unexpected news
Since the privatization of 19.5% of Rosneft had to be completed in a short time, before the end of 2016, in order to replenish the deficit budget, Rosneft itself was considered the most realistic contender for this package. Putin spoke about this “intermediate” option (it was assumed that Rosneft would then resell its shares to third-party investors) back in October. And last week, his assistant and chairman of the board of directors of Rosneft, Andrei Belousov, said that the government is still considering two options for privatizing Rosneft shares - “either it will be an investor, or it will be a buy-back.” But first of all, the company’s management should come up with a proposal on the format of the transaction, he emphasized. In order to clarify the situation, he even sent a letter to Sechin. He answered him on time, December 1st. “Everything, we are completely clear. [The management] answered the questions that I had as the chairman of the board of directors of Rosneft, Igor Ivanovich [Sechin] answered,” the official said then.
The sale of 19.5% of Rosneft to a consortium of Glencore and Qatar Investment Authority is unexpected news for the market; obviously, this is Sechin’s personal merit, says Vitaly Kryukov, director of Small Letters. He points out that the arrival of the Qatari fund, which was not previously seen in large investments in the Russian oil industry, is especially interesting, while Glencore is already part of the capital of RussNeft (owns 25%) and is a major buyer of Russian oil. He believes that with Qatar being a member of OPEC, there may now be new projects in the Russian oil industry after this deal. This is truly the largest deal in the global energy market, notes KPMG partner in Russia Anton Usov. Real privatization has taken place, and the arrival of foreign investors in the Russian oil industry at this rather difficult time for the oil industry is very positive news, he adds.
At the meeting with Sechin, Putin instructed Rosneft to develop the safest scheme for the financial market for converting €10.5 billion from the sale of 19.5% of Rosneft shares to be credited to the federal budget. “A significant amount of foreign currency will now enter the financial market, the money should go to the budget in ruble equivalent, so we need to develop a scheme that would not negatively affect the market or cause any jumps in the foreign exchange market,” Putin said . He recalled that Rosneftegaz, which ultimately must transfer money to the budget, has significant resources in rubles. In addition, he instructed Rosneft, together with the Ministry of Finance and the Central Bank, to develop “step-by-step movements” for currency conversion so that there would be no fluctuations in the financial market. “We are in contact with the Central Bank and the Ministry of Finance, we will definitely report to the Prime Minister [Dmitry Medvedev] and develop a scheme that guarantees minimal impact on the market,” Sechin promised him.
With the participation of Lyudmila Podobedova