Rosneft in 2016 provided guarantees to banks and third parties at $11 billion, as well as advances to the Venezuelan PDVSA worth $1.5 billion. These are mainly the transactions under trading contracts, explained the company
Rosneft in 2016 provided guarantees amounting to €9 billion to unnamed banks for the period up to 2022, the annual financial report states. This is done "in order to provide flexible conditions for supply and trading contracts related to hydrocarbons." What were the obligations guaranteed by Rosneft, and to whom they belonged, the report does not disclose. A representative of the comapny told RBC that to increase efficiency and improve sales margins trading contracts Rosneft can include the provision of guarantees in favor of third parties. He did not disclose the counterparties and conditions.
As of December 31, 2016 the probability of occurrence of events leading to the requirements under the treaties of guarantee, was estimated as extremely low, said Rosneft" Previously, the company in its IFRS reports (available since 2011) never reported on similar guarantees on trading operations.
In January 2017, Rosneft signed a five-year (ie until the end of 2021) contract for the supply of oil to the British QHG Trading, a joint venture of Swiss trader Glencore and Qatar sovereign fund QIA. In December, a consortium of Glencore - QIA became a shareholder of Rosneft, buyung a 19.5% stake in the company. The total volume of trading on the supply contract for five years ranges from 22.5 million to 55 million tons, according to Rosneft. At the current price of Urals oil, and at the lower end (22.5 million tonnes), the five-year contracted volume is estimated at about €8 billion. But there is no pre-payment on the contract, said a representative of Rosneft. This means that the bank financing or guarantees, which usually accompany such contracts, would not be necessary. Previous oil supply contracts with traders Glencore, Vitol and were concluded by Rosneft on a prepaid basis.
In its report for the first nine months of 2016, Rosneft says nothing about the guarantee on trading operations, and in the fourth quarter, reported only one new supply contract: with Glencore in the framework of the privatization of 19.5% of Rosneft, says VTB analyst Ekaterina Rodina . Glencore spokesman told RBC that on these issues one must ask Rosneft. Rosneft representative, in response to a question about guarantees and trading operations, said that the company's long-term contracts provide for the supply of oil, oil products, LNG within trading operations in more than 40 countries around the world with dozens of major international companies. "For this work, Rosneft uses a variety of tools, including guaranteeing the fulfillment by the parties of their obligations," he said.
In 2016, Rosneft placed a series of structured deposits "in highly reliable Russian banks" to take part in trading transactions, as well as for the current mergers and acquisitions and to finance the supply of oil to Cuba and Venezuela, according to company's materials accompanying the statements. Structured deposits tend to combine the standard deposit and optional (forward) contract, allowing further capitalize on the growth of the price of an asset (eg oil). The report also states that in 2016 Rosneft signed contracts for the placement of deposits for a period up to 2022 in dollars and euros on the amount equivalent to 400 billion rubles. It is not clear whether we are talking about the same deposits, and whether they are related to the guarantees of the company by €9 billion.
Rosneft also has its own trading operations, for example through Swiss Rosneft Trading S.A. The trader has been supplying oil and oil products, as well as LNG. In the summer of 2016, Rosneft agreed for counter-deliveries of oil and petroleum products from Venezuela's PDVSA. Rosneft supplies oil to Venezuela, while PDVSA also gives its oil to Rosneft, thus paying advances (actually loans) provided by a Russian company.
Perhaps Rosneft guaranteed bank loans for the direct buyers of its oil, it could be a counterparty of Rosneft in developing countries, says a senior analyst at Sberbank CIB Valery Nesterov. Venezuela is currently experiencing problems with oil supply for its long-term contracts, for which it received an advance payment, reminds Nesterov. It is possible that PDVSA to attract loans and payments with Rosneft might need some kind of guarantee, the analyst suggests. The second problematic country, which would require a guarantee on loans, is Cuba, said Nesterov. In September 2016, Raul Castro, the Cuban leader in a letter asked President Vladimir Putin to consider the possibility of establishing a stable supply of oil and petroleum products to Cuba, a source in Rosneft told RBC that the supply to Cuba are logistically possible as Rosneft was already supplying oil to Venezuela.
103 billion for third parties
Rosneft also provided a guarantee "in favor of third parties" for the amount equivalent to 103 billion rubles at the Central Bank exchange rate as of December 31, 2016. The report didn't mention the currency. This was done "within the framework of investment activity", notes Rosneft. The amount of the guarantee corresponds to approximately € 1.6 billion ($1.7 billion). The representative of Rosneft has not yet responded to the question of RBC, asking to clarify the said third parties. In the balance sheet date Rosneft estimates the probability of occurrence of financial obligations under this surety as extremely low.
Glencore in December reported that it would pay €300 million euros of its own money for the shares of Rosneft; its partner QIA would contribute € 2.5 billion, while the remaining €7.4 billion were a loan from a consortium of Italian bank Intesa and unnamed Russian banks. This was provided to Glencore by Intesa, which has pledged the privatized package of Rosneft shares, a guarantee of up to €1.4 billion for the case of falling share prices, and, accordingly, reduce the cost of collateral. However, some Russian banks agreed to fully compensate Glencore that amount if necessary. What were these banks, who provided their own guarantees, were not disclosed. Rosneft did not participate in the transaction as a guarantor of the obligations of its members to the creditors, Vedomosti reported in December, citing a source in Rosneft.
Advances to Venezuela
Rosneft also issued new advances to the Venezuelan oil company PDVSA, of which it has long been a partner. Rosneft in previous reports, reported that in May 2016 PDVSA had issued an advance in the amount of $500 million under a contract for the supply of oil. Now the advances made in November (by $ 500 million and $ 205 million) and in December (at $ 280 million) are disclosed. Thus, last year, Rosneft provided to PDVSA advances totaling nearly $1.5 billion, and another advance payment of $500 million, issued at the beginning of 2016, was converted into an additional 23.3% in Venezuelan JV Petromonagas.
Rosneft us the largest foreign investor in Venezuela, noted the company itself. But the company has had problems. In February 2017, Reuters reported delinquency supply of Venezuelan oil to Rosneft, and the Venezuelan Parliament at the same time accused the company of violating the Constitution, understating the cost of the shares and not approving the deal to increase its stake in Petromonagas. Rosneft in response said that it had no doubts on the legitimacy of the transaction.
In 2014, PDVSA agreed with the subsidiary of Rosneft, TNK Trading International S.A. to get a prepayment of $ 4 billion over the next supply of oil and petroleum products, PDVSA said in statements for 2014 (Rosneft in the report for the same year didn't mention it). Deliveries were calculated for five years, the interest rate was LIBOR plus 6% in the first year, and LIBOR plus 4% in subsequent years. In 2015, PDVSA did not receive advances from Rosneft, asfollows from the statements of the Venezuelan company. Prepayments worth $2 billion have been reflected in the reports of Rosneft for 2016, of which $500 million were reclassified from non-current assets to the investments in joint ventures (share of Petromonagas).