Qatar replaced for "Rosneft" China

Qatar investment fund QIA saves a deal to privatize the state stake in Rosneft.
Qatar Investment Fund QIA agreed to save the sale of a 14.16% stake in Rosneft after the final buyer of the Chinese CEFC was incapacitated after the arrest of its founder, E Jianming, by the PRC authorities. Now QIA will become the direct owner of a 19% stake in the Russian state company, almost completely buying out the share of its Glencore trading partner for € 3.7 billion. This will allow Glencore to repay the loan taken in December 2016 to buy a stake in Rosneft. The deal can be considered a symbol of strengthening ties between Russia and Qatar, experts say.

The deal to sell a 14.16% stake in Rosneft to a private Chinese company CEFC is broken, the buyer of the package will be Qatar's state fund QIA, a Swiss trader, Glencore, said on Friday. Trader, along with QIA, now owns this package through the Singapore joint venture QHG Oil Ventures, but will only retain 0.53% of Rosneft as a result of the deal. The share of QIA in the oil company will grow to 18.93%, and the fund will become the third largest shareholder of Rosneft after the Russian Federation (Rosimushchestvo owns 50% of shares through Rosneftegaz) and British BP (19.75%).

This configuration completes the semi-annual epic with an attempt to sell Rosneft shares through QHG Oil Ventures to a Chinese company. CEFC, which is a conglomerate of various businesses with an opaque financial history, faced critical problems after the Chinese authorities arrested its founder, E Jianming, in March, accusing him of economic crimes. As a result, CEFC was not able to raise money to buy a stake in Rosneft (previously it needed about $ 9 billion) and is now struggling to survive, cutting staff and selling off assets. "If in this situation the deal with CEFC on Rosneft shares passed, it would be a disaster," one of the interlocutors of Kommersant notes in the market.

QIA together with Glencore acted as initial buyers of a 19.5% stake in Rosneft during the privatization in December 2016. Then the Qatar people bought directly 4.77% of Rosneft, Glencore - 0.53% (these packages were paid in cash). The bulk of the Rosneft stake in 14.16% was purchased jointly by QIA and Glencore for a loan from a number of Russian banks (€ 2.2 billion) and Italian Intesa Sanpaolo (€ 5.2 billion), and these shares were pledged. Initially, it was assumed that interest on the loan would be repaid at the expense of Rosneft's dividends, which were specially raised for this purpose first to 35% of Rosneft's profit under IFRS, and then by order of Russian President Vladimir Putin to 50%.

However, the plan encountered a number of difficulties. First, because of Western sanctions, Intesa was unable to syndicate its loan, which is why it remained, according to Kommersant, more expensive than planned. Secondly, the strengthening of the euro against the dollar and the ruble led to the fact that even the increased dividends of Rosneft did not cover the payments on the loan. Thus, according to Kommersant's estimates, if the effective interest rate on the loan was 5% (corresponds to the market), interest payments on it reached € 370 mln, while QIA and Glencore received only € 224 mln of dividends for the package of 14.16% (at the rate for September 2017). Third, the weakening of the ruble and the threat of new sanctions against Russian companies led to a fall in the market value of Rosneft's shares in euros. If in January 2017 the package of 14.16% pledged was worth € 7.9 billion in the market, then in August, before the agreements with the CEFC, only € 6.5 billion, that is, less than the loan amount of € 7 , 4 billion. This created additional risks for banks.

Glencore said that it will receive € 3.7 billion for half of the package in 14.16% - this will allow it to repay its share of the loan, attracted a year and a half ago. In addition, the trader will be able to maintain a contract with Rosneft for the supply of 10 million tons of oil per year. As it will finance the transaction itself QIA, it is not known. It is possible that the fund could get a loan from Russian banks to purchase the stake in Glencore, since VTB officially stated that it was ready to finance the deal for the CEFC (it is unlikely to involve Western banks in the transaction, given sanctions). Note that on May 1, the Board of Directors of Rosneft approved a $ 2 billion buyback program for the years 2018-2020. The buyback program is traditionally used to support stock quotes, and if QIA attracted bank financing for this transaction and laid part of its package, the availability of such a "buyback" insurance can be important for banks.

The key question for the market is whether QIA is in the current configuration a temporary holder of the stake or it will become a major shareholder of Rosneft for a long time. According to Kommersant's interlocutors, considering the situation with sanctions against Rosneft and their possible tightening, in practice it will be extremely difficult to find other buyers for the company's shares, and after the break in the deal with CEFC, Rosneft is likely to be more cautious in choosing partners . Rosneft spokesman Mikhail Leontiev told Kommersant that the oil company "has finally formed the final shareholder structure, having received a new strategic partner in the form of QIA." According to him, "the market will soon see a number of bilateral international transactions," including in the gas sector.

According to experts, the increase in the share of QIA in Rosneft means further strengthening of relations between Russia and Qatar. "Qatar is trying to get out of the isolation, which it got because of discontent from its partners on the Council of Cooperation of the Persian Gulf States," said Vladimir Isaev, professor at the Institute of Asian and African Studies at the Moscow State University. Qatar expert Dmitry Frolovsky agreed that "this is a deal in the spirit of Qatar diplomacy - money in exchange for geopolitical concessions, a strategy used by the Qatarians for several decades." He notes that the Emir of Qatar, Tamim bin Hamad al-Thani, came to Moscow to meet with Vladimir Putin at the end of March and "today's news is a reflection of that visit." According to Mr. Frolovsky, Qatar probably does not consider the deal on Rosneft as effective, but "Doha wants to show that it is generally prone to restore and further strengthen relations with Russia."