Moscow - Russia
said on Wednesday it sold a stake in oil giant Rosneft for 10.5 billion euros
($11.3 billion) to Qatar
and commodities trader Glencore, confounding expectations that the Kremlin's
standoff with the West would scare off major investors.
The deal,
to acquire a 19.5 percent stake in Rosneft from the Russian state, suggests the
lure of taking a share in one of the world's biggest oil companies outweighs
the risks that come with Western sanctions imposed on Russia over the conflict
in Ukraine.
It pointed
to a possible reassessment by foreign investors of the risks of dealing with Russia, at a time when the election of Donald
Trump as US president has
heightened expectations of a thaw between Moscow
and Washington.
The deal
was announced days after Russia
and OPEC agreed to coordinated output cuts to support oil prices, the first
time they have cut in tandem in 15 years.
State-owned
Rosneft had kept the deal a tightly-guarded secret, with the first word
emerging when Russian President Vladimir Putin met Rosneft CEO Igor Sechin on
Wednesday evening in Moscow.
"It is
the largest privatisation deal, the largest sale and acquisition in the global
oil and gas sector in 2016," Putin said in televised remarks from the
meeting.
Under the
deal, according to Sechin, Glencore and Qatar's sovereign fund will take
equal shares of the 19.5 percent stake in Rosneft, which is being sold by the
government as part of a privatisation drive.
Rosneft has
a market value of $59.17 billion, according to Reuters data, which suggests
that the deal was done with a 2 percent discount to the market price.
Glencore
said in a statement it would finance part of the deal by putting up 300 million
euros of its own equity, with the rest financed by banks and by the Qatari
sovereign fund, the Qatar Investment Authority.
The Qatari
fund, which could not immediately be reached for comment, is one of the biggest
investors in Glencore.
Read also: Eskom's row with Glencore gets nastier
Russian
officials were jubilant that Rosneft had pulled off a deal which will deliver a
large chunk of the cash they need to fill gaps in the state budget caused by an
economic slowdown and sanctions.
"Money
has no smell," a government source told Reuters when asked about the
outcome of the deal.
Putin’s contribution
Putin
congratulated Sechin, one of his closest lieutenants, on the deal and said he
hoped that the consortium of new investors would improve Rosneft's governance
and transparency and would raise its market value.
"Given
the very difficult economic circumstances and the extremely tight deadlines for
this kind of project, I can report to you that we were able to land this deal
thanks to your personal contribution, your support," Sechin told
Putin.
Glencore
stands to benefit from the deal by gaining access to Rosneft's crude volumes.
It said that under the deal, it would conclude a new five-year offtake
agreement with Rosneft giving it an extra 220 000 barrels a day to trade.
To date,
Glencore's rival Trafigura has been the biggest long-term buyer of Urals crude
oil, the grade of oil produced in Russia.
Read also: Glencore's road to recovery has three signposts
Qatar, meanwhile, will further establish
itself as a major investor in some of the world's biggest businesses. It
already owns stakes in such bluechip firms as Volkswagen and Credit
Suisse.
Rosneft is
subject to US sanctions imposed after Russia annexed Ukraine's Crimea region in
2014. But since the money from the sale of the stake will go to the Russian
state, rather than to Rosneft, the sanctions do not directly apply.
By landing
the investors, Sechin will further burnish his standing within Russia's ruling
elite. He was already riding high after securing a deal in October to acquire
Indian refiner Essar, giving Rosneft a foothold in the world's fastest growing
fuel market.
"He
said the money would come," said a second source within the government,
referring to revenue from the Rosneft stake sale that was promised to the
government. "He killed all the birds with one stone. He showed
everyone," said the source, speaking on condition of anonymity.
Just a few
weeks ago, most industry watchers had written off the chances of a foreign
investor being found for Rosneft, and the government signalled that the company
would instead buy its own shares.
When
Rosneft this week placed $9.4 billion in domestic rouble bonds, market players
assumed that was to fund the buyback of its shares, absent an outside investor.
But it now
appears that, in parallel, Sechin and his aides were trying to hash out an
eleventh hour deal to land a foreign investor. Ivan Glasenberg, Glencore's
chief executive, was in Moscow
on Tuesday, where he was spotted at a mining conference.
The second
government source said the bond issue was a safety net in case the negotiations
with the outside investors fell through.
The deal
with Qatar
and Glencore was so last minute that it appeared it would not close in time to
meet the government's deadline for booking money in the budget from the
sale.
Asked by
Putin when the state budget was going to get the money earned from the sale,
Sechin said that it was going to come from Rosneft cashflow and from credit
finance, organised by one of Europe's largest
banks.
After the
deal was announced, the Kremlin said steps would be taken to ensure that the
influx of a large volume of foreign currency from the deal would not cause
volatility on the Russian forex market.