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Does Russia Really Want To Privatize Rosneft?

Rosneft

In a sensational report last week, Russia announced a block-buster deal, the long planned privatization sale of nearly 20 percent of government held shares in the oil giant Rosneft, to Glencore trading company and its joint venture partner, the Qatar sovereign fund.

As noted here, the price of $11 billion made global headlines as the biggest foreign investment in Russia since the Ukraine conflict and provided a much needed cash infusion for the Russian government.

Russian media also trumpeted the news that sanctioned Russian industries now seemed able to raise large amounts of financing from recognized western financial and banking sources. This has set off sanction alarms at the U.S. Treasury Department that will certainly lead to an investigation into the deal’s financing.

But many in the Russian press are extremely skeptical that the deal took place as reported. Instead they are convinced that Rosneft itself, through a round-about arrangement, bought the government-owned shares. The skeptics point to the facts that because of the commodity market slump, Glencore was heavily in debt last year to the tune of $30 billion, and was busy rebuilding its balance sheet this year. They also pointed out that the deal for the sale of government shares has been on the table for many months, with no takers.

In a serious counter to Rosneft’s description of the deal, the skeptics offer an alternative scenario, where, in November, Rosneft issued bonds for $16 billion which were purchased by Russian banks on credit lines issued by the Russian Central Bank. The proceeds from the bond sale were transferred to the same bond-buying banks, which then provided the funds to underwrite the share purchase by Glencore and Qatar. Related: The Self-Driving Vehicle Revolution Has Begun

Although Rosneft insists that the bond money was raised exclusively to support company growth, and that a little known Italian bank (Banca Intesa Sanpaolo) underwrote the deal to buy government shares, few in the Russian or Italian financial press believe that any Italian bank would seek to openly cross U.S. sanction-makers.

The shareholder’s agreement seems to support the alternative scenario, with Rosneft remaining the fiduciary holder of the newly acquired shares, and leaving Glencore and Qatar with no voting rights. It’s hard to believe that any company making a multi-billion dollar investment in another company would so easily forego voting rights.

The rewards for collusion, if that's the case, is Glencore gets an additional five year off-take agreement from Rosneft for 220,000 barrels of oil per day, with the commission rate to the giant Swiss trader rising from 1 percent to 3 percent. As a deal sweetener, Rosneft also announced that it is raising its dividend rate from 25 percent to 35 percent.

If the alternative scenario proves true, the much-celebrated deal was in reality a share buy-back by the company, financed by the Russian Central Bank, and paid into the Government Treasury. That would mean that the U.S. Treasury can relax, as no foreign money was involved.

By Robert Berke

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