* Former co-president Chammah to advise on banking revamp
* Chammah, Moscow execs to form advisory group
By Melissa Akin
MOSCOW, Nov 12 (Reuters) - Rosneft has hired Morgan Stanley veterans led by former co-president Walid Chammah to advise its president on an overhaul of its financial assets and create a platform for hedging its oil trade.
Two top executives from Morgan Stanley’s Moscow office, Rair Simonyan and Elena Titova, have also been hired to advise Igor Sechin, who has launched a series of international exploration deals and a $55 billion buyout of BP’s Russian joint venture, TNK-BP, Russia’s largest ever takeover.
Rosneft’s move underlines a shift in power in commodities trade away from Morgan Stanley and rival financial institutions such as Goldman Sachs and J.P. Morgan, which have been forced into retreat by increasingly strict market regulation.
“Clearly tighter regulation is an opportunity for a new entrant into the trading business,” Chammah told Reuters.
“That will open up opportunities for third parties, either for financial investors in the form of hedge funds, or independent oil traders like Glencore and others, or new entrants like ourselves who are oil companies who would like to take part in the market by having the ability to physically deliver the supply and actively participate in the derivatives side of it.”
For Rosneft, it is a chance to grab seasoned staff and raise Rosneft’s game on international financial markets in preparation for a push into new oil provinces, where hundreds of billions in dollars of investment are needed.
Sechin is a longtime ally of President Vladimir Putin who advanced his goal of launching Rosneft into the ranks of global majors by signing up ExxonMobil, Statoil and Eni to explore in Russia’s Arctic seas.
“The opportunity costs could be very high, whether as a result of incompetence or of abuse,” Simonyan said. “When they start to execute 20 year deals worth $300-$500 billion, the figures defy comprehension. The potential for theft is almost as much as the gross product of the Russian Federation.”
“There must be absolute certainty that the company is getting the best terms possible. It needs people who can be trusted on one hand but are capable of making these judgments on the other. Walid’s role is especially great here, since he knows the people and the structures, what can and can’t be done.”
Morgan Stanley has been close to Rosneft since it managed a$10 billion initial public offering in 2006, supplying the company with its last three finance chiefs. Simonyan, an academic by training, is a former Rosneft executive.
Titova will become president of a Rosneft-owned bank, the mid-sized Russian Regional Development Bank, which had assets of 88.5 billion roubles ($2.8 billion) as of Oct 1. Chammah and Simonyan will join its board.
Chammah served as co-president of Morgan Stanley from 2007 to 2011. A fixed income specialist, he oversaw Morgan Stanley’s commodities trading business, which during peak years brought in upwards of $3 billion.
International banks, which piled into trading oil, metal and agricultural commodities both as physical volumes and paper, have been forced into a retreat by the 2008 financial crisis and tightening U.S. regulation.
Morgan Stanley itself may sell off part of its commodities trade business to its management or a Qatari investment fund to reduce the impact of new restrictions on derivatives trade by banks.
Rosneft, Russia’s largest producer and by its own reckoning, its largest taxpayer, exports hundreds of millions of barrels of crude per year without hedging, leaving the company and the Russian budget vulnerable to swings in the oil price.
“It is a broader problem for Rosneft. Risk management can be implemented in different ways,” Simonyan said. “What it allows is predictability of cash flows and a chance to plan operations in advance.”