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Russian state bank lent billions to fund Rosneft privatization deal
January 17, 2017 / 10:14 AM / 10 months ago

Russian state bank lent billions to fund Rosneft privatization deal

MOSCOW (Reuters) - Russian state-owned bank VTB lent over $11 billion to Qatar and commodities trader Glencore four days after they signed a deal to buy a stake in Russian state oil firm Rosneft for the same amount of money, according to company records seen by Reuters.

The logo of VTB bank is seen on the bank's headquarters in Kiev, Ukraine, July 4, 2016. REUTERS/Valentyn Ogirenko

The loan was a stopgap until other financing was put in place but the fact that it was required -- despite a warning from President Vladimir Putin that state lenders should not be involved in such transactions -- illustrates the last-minute scramble by the Kremlin and its allies to get the Rosneft sale announced last month over the line.

The Kremlin, buffeted by an economic slowdown made worse by sanctions imposed over the Ukraine conflict, needed the Rosneft deal both as a source of money for the cash-strapped budget, and to show that Russian assets were still attractive to foreign investors.

Asked about VTB providing the loan, a Glencore spokesman said: “This was an intermediate step as part of the process leading up to the closure of the transaction.”

Qatar’s sovereign fund, the Qatar Investment Authority, declined to comment, as did VTB. Rosneft would not confirm the existence of the loan, but said the deal was structured to avoid causing volatility on the Russian foreign exchange market.

A Kremlin spokesman said he could not confirm if the loan was made or not, but said it should not be seen as part of the financing for the Rosneft deal.

SINGAPORE SLING

The 19.5 percent stake in Rosneft that was acquired by Qatar and Glencore is held by a Singapore-registered company called QHG Shares Pte, according to documents lodged with Singapore financial regulators.

One of the documents, lodged with Singapore’s Accounting and Corporate Regulatory Authority, shows that on Dec. 15 last year QHG Shares Pte. gave VTB shares in Rosneft as collateral for a loan to the Singapore firm of 692.4 billion roubles ($11.69 billion).

The same document states that on Dec. 22, the loan agreement was ended, and that VTB ceded the shares and the loan agreement to Rosneftegaz, the Russian state holding company which has a majority stake in Rosneft.

The document stated that the termination was needed to clear the way for a separate loan, issued by Italian bank Intesa Sanpaolo. Intesa organized the Rosneft stake sale and has provided 5.2 billion euros in finance.

On Jan. 3, Intesa got a 19.5 percent stake in Rosneft as collateral for the loan, the separate document showed.

There is no record in the documents found by Reuters that the money loaned to VTB was repaid to it. It is possible that this transaction took place in a different jurisdiction so was not reported to the Singapore authorities.

JEWEL IN CROWN

The VTB loan adds to the intrigue still swirling about the sale of the Rosneft stake. A month after the stake sale was announced, there is still no definitive explanation where all the long-term financing will come from.

Glencore said Russian banks were involved in that deal, but there has been no confirmation of which lenders, or how much money they put in.

A senior Russian banking source, who spoke to Reuters last week on condition of anonymity, said Gazprombank was also involved in the deal’s financing. He did not provide details. Gazprombank did not reply to Reuters request for a comment.

The sale of the 19.5 percent stake in Rosneft, the world’s largest listed oil producer, was heralded by Russian officials as the jewel in the crown of Russia’s 2016 privatization program to plug holes in the state budget.

Launching the privatizations on Feb. 1 last year, Putin set out to his officials the conditions under which state assets must be sold: no sweetheart deals, no firesales, and the buyers could obtain finance “but not from state banks”, he said. “That won’t do much good.”

By early December, with a deadline looming for the sale of the Rosneft stake to be completed and the money transferred to the budget, there was still no deal.

At a Dec. 7 meeting in the Kremlin between Putin and Rosneft Chief Executive Igor Sechin, a surprise was unveiled: the stake had been sold to Qatar and Glencore for 10.2 billion euros.

“It is the largest privatization deal, the largest sale and acquisition in the global oil and gas sector in 2016,” Putin said in televised remarks from the meeting.

Asked on Tuesday about whether a loan from VTB contradicted Putin’s instructions about state lenders not financing privatization deals, Kremlin spokesman Dmitry Peskov said: “It cannot be seen as participation in the privatization. It has absolutely no connection to the privatization itself.”

Additional reporting by Oksana Kobzeva, Alexander Winning and Polina Devitt in MOSCOW, Tom Finn in DOHA; Editing by Christian Lowe and Susan Thomas

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