“I want to congratulate you,” said Russian President Vladimir Putin to his comrade-in-arms Igor Sechin, welcoming him with a firm handshake in the Kremlin in December 2016.
Sechin has just announced the sale of a 19.5 percent stake in the oil giant Rosneft headed by him to the sovereign fund of Qatar and the commodity trader Glencore.
A privatization deal worth 10.2 billion euros ($ 11.5 billion) was urgently needed to replenish the Russian treasury, depleted by falling energy prices and Western sanctions.
Some Russian officials said the deal is proof that despite the growing political isolation from the West, Russia is still able to attract global investors.
Now, almost two years after the announcement of the sale, nine sources familiar with the transaction told Reuters that the Russian state bank VTB had financed a significant part of the transaction, contrary to the stated goal of attracting foreign money to Russia.
Based on information from five sources, the size of the Russian loan to the Qatari sovereign fund was about $ 6 billion.
VTB denies issuing a loan to the Qatari Fund - Qatar Investment Authority (QIA): “VTB did not allocate and does not plan to allocate a loan to QIA to finance the acquisition.”
VTB reports for September, posted on the website of the Central Bank of the Russian Federation, showed that VTB lent 434 billion rubles ($ 6.7 billion) to unnamed foreign borrowers for up to three years after it borrowed 350 billion rubles from the Central Bank of Russia.
The financial results of VTB, published on November 8, show that in the third quarter, the volume of loans to the 10 largest borrowers of the bank grew by 403 billion rubles, or approximately $ 6 billion.
VTB declined to comment on these transactions. The CBR did not answer the questions.
QIA declined to comment. The Kremlin did not respond to a request for comment. Rosneft did not respond to questions about VTB loan Qatar.
Rosneft, the world's largest oil company in terms of production, whose shares are traded on the exchange, is a pearl in the Russian corporate crown.
However, Sechin faced a difficult task - to find buyers or lenders who want to risk their money and buy a stake in Rosneft in the context of sanctions against the Russian Federation and against the backdrop of the prospect of their tightening.
The sanctions imposed against Russia after the annexation of the Ukrainian Crimea in 2014 limit the access of Russian companies to international debt markets.
In the end, in order to attract foreign investors, Russia had to lend them billions, sources say. Two sources familiar with the deal said that the presence of a third party financing a significant part of the transaction was a condition for Qatar to acquire a stake in Rosneft.
Now, when oil prices significantly exceed the levels of the end of 2016, Russia's need for foreign money has decreased.
But if she again has to enter international markets, the story of the sale of Rosneft’s stake points to the challenges it may face in trying to attract foreign investors, especially if the US expands sanctions against Russia.
Among the nine sources who told Reuters about VTB loan to Qatar, a source close to the management of VTB, an employee of the Central Bank, and a source in the Russian government who is familiar with foreign investment in Russia.
At least four sources were directly involved in loan preparation. All sources spoke on condition of anonymity, since they are not authorized to discuss the transaction.
In response to a question about how the privatization took place, Rosneft reported that the transaction was transparent and market, and also met the interests of all shareholders.
The company reported that all decisions relating to the transaction had passed the relevant corporate approval procedures, the transaction was supported by the governments of the participating countries and passed through control procedures in the relevant jurisdictions.
“This is a unique example of effective privatization,” - said in a statement Rosneft.
FROM BAY TO JAPAN
By the end of 2016, the pressure on Sechin, one of Putin’s closest associates, began to grow. The government has publicly announced that it will sell 19.5 percent of Rosneft shares by the end of the year.
The state budget, affected by the decline in oil prices, the economic downturn and Western sanctions, showed a deficit of 3.5 percent of GDP. The Russian economy experienced a second year of recession and the prospect of a quick recovery of public finances was absent.
By the fall of 2016, Sechin, now 58, thought he had found a potential buyer: the sovereign fund of the United Arab Emirates, Mubadala.
According to two sources familiar with the development of events, the fund agreed to buy a stake. But the negotiations reached an impasse, after Rosneft changed the value of a share twice, which forced the UAE to abandon the deal, two sources said.
Mubadala declined to comment. Rosneft did not answer questions about negotiations with Mubadala.
After that, Sechin turned his gaze to the east, starting negotiations with Japanese officials, a source in the Russian government and a source close to Rosneft said. This is also evidenced by the recording of the conversation with the participation of Sechin, which appeared in the framework of the court case in which he was a witness.
The negotiations were mainly conducted with the Minister of Economy, Trade and Industry of Japan Hiroshige Seko.
If a deal were made, the owner would be a large Japanese investment fund, such as the state-owned pension fund GPIF with assets of $ 1.4 trillion, or the national oil, gas and metals corporation JOGMEC, three sources familiar with the talks told Reuters.
According to Sechin, on the record reproduced in court, an obstacle arose on the way to the deal when Japan began to insist on linking it with progress in the territorial dispute over the Kuril Islands.
As a result, the deal fell through.
The Ministry of Economy, Trade and Industry of Japan did not answer the questions. Rosneft did not answer questions about negotiations with Japan. The press service of JOGMEC said it could not comment. GPIF said it would not comment on intergovernmental negotiations, since it did not directly participate in them.
QATAR HURRY FOR HELP?
Not finding a buyer, Sechin focused on new candidates: QIA's sovereign fund and international trader Glencore.
None of them was willing to pay the full price, three sources said.
In the past, Rosneft used the services of large Western banks, such as Deutsche Bank and JP Morgan, to finance transactions. However, international lenders did not announce new deals with Rosneft after the introduction of sanctions against Russia in 2014.
The game was entered by Intesa SanPaolo, a medium-sized Italian bank that had little experience in large Russian corporate transactions.
By the beginning of December 2016, a plan for financing the deal was formed. Buyers have allocated part of their own funds: Qatar - 2.5 billion euros, Glencore - 300 million euros.
The remaining part fell on debt, from which Intesa contributed 5.2 billion euros. The missing part, according to Glencore, should have been provided by Russian banks. These lenders were never named.
The amount accrued to Russian banks was about $ 2.5 billion. Two banking sources close to Rosneft told Reuters that VTB was one of the banks that took part in loans of $ 2.5 billion in 2016.
These sources said that other banks were Gazprombank and Otkritie FC, which, like VTB, are affiliated with the state, although the discovery was private during the transaction.
It is not clear which part of the $ 2.5 billion each of the Russian banks provided.
VTB's participation in raising $ 2.5 billion is not related to the approximately $ 6 billion that, according to nine sources, VTB has provided Qatar this year.
When asked about loans of $ 2.5 billion, VTB responded that it did not provide financing, but was the coordinating bank on behalf of Rosneft.
The discovery declined to comment, Gazprombank did not answer the questions.
As for the largest share of financing, a loan of 5.2 billion euros provided by Intesa, the Italian bank planned to syndicate these funds - a common practice designed to spread risks and reduce the burden on the bank’s capital.
However, two banking sources and a source close to the Italian side of the deal said that the syndication had collapsed because the Western banks that Intesa turned to were too afraid of the risks, since Rosneft and Sechin are under US sanctions.
Intesa declined to comment.
During the announcement of the deal in December 2016 and during the weeks after it, Russian officials publicly announced a long-term partnership with Rosneft’s new shareholders, Qatar and Glencore.
However, when in September 2017, Sechin announced the purchase of 14.2 percent of Rosneft from the Qatar consortium and Glencore by the Chinese energy company CEFC, it became clear that the deal was not yet completed.
Explaining why the original agreement did not succeed, he told the Russian state-run television channel that the new shareholders considered the cost of debt service too high.
However, the deal with CEFC was never closed due to an investigation into the head of the company Ye Jianmin, who was under investigation due to suspicions of economic crimes.
Nothing is known about the status of the investigation since then, as well as whether charges were filed against Ye Jianmini. The name E, however, was mentioned in connection with the bribery case against a high-ranking functionary of the Chinese Communist Party, the state television channel CCTV reported in September.
Neither E nor CEFC responded to the request for comment.
Sechin had to look for a buyer again.
As a result, in May 2018, Qatar agreed to become the owner of a stake in Rosneft, funded by Intesa.
Officially, no one informed how the new deal with Qatar was financed, or who provided the funds.
But the participation in it Intesa ended.
The document, dated September 6, 2018 and entered into the business register of Singapore, where the company is registered, which owned shares of Rosneft on behalf of Qatar and Glencore, indicates that Intesa has ceased to be a creditor and does not hold shares as collateral.
The document does not indicate who became the new lender. According to nine sources familiar with the arrangements, this lender is VTB.
At a reception at the Italian Embassy in Moscow on the occasion of receiving the Order for Services to the Italian Republic last November, Sechin held a gray-haired man with fashionable glasses under his arm.
It was Andrei Kostin, the head of the bank who helped finance the privatization - VTB.