MOSCOW – A surprise decision by Russia to sell a fifth of its state-controlled oil company to, among others, a Swiss company has raised questions about the impact of Western sanctions and who is behind the deal.
The CEO of Rosneft said late Wednesday that it had agreed to sell a 19.5 percent stake to Swiss commodities giant Glencore and Qatar's sovereign wealth fund.
The move was billed as part of the Russian government's efforts to unload some state assets to help balance its budget amid a two-year recession caused by a drop in global oil prices and by Western sanctions against Russia.
The presence of Glencore in the deal, however, has raised eyebrows since the Russian oil industry is supposed to be off limits for Western investors because of European and American sanctions imposed on Russia. And the terms of the deal are not clear, with an unnamed bank taking a prominent role.
Here's a look at the deal.
WHY IS IT A SURPRISE?
As part of Russia's privatization drive, Rosneft was scheduled to sell a chunk of its shares by the end of the year. Rosneft is run by Igor Sechin, Putin's long-standing ally, who is believed to wield almost unrivalled influence in the Russian energy sector and beyond. Earlier, Rosneft was reported to be inclined toward buying back its own shares instead of raising money through a sale to investors. And before the deal was announced, it was unclear where Rosneft could find a potential investor amid the current unstable market and with the backdrop of Western sanctions.
WHAT IS GLENCORE'S ROLE IN THE DEAL?
Glencore's participation in the deal came as a surprise since the company is going through difficult financial times and only last year faced doubts about its ability to handle its own debts.
Although Rosneft did not disclose Glencore's role in the deal, the company said in a statement that it would put just 300 million euros ($322 million) of its own money into Rosneft shares. The remainder will be provided by an unspecified bank that neither company would name. Rosneft CEO Sechin said in a meeting with Russian President Vladimir Putin that the deal will be financed by "one of the largest European banks."
WHAT ARE GLENCORE'S TIES IN RUSSIA?
Glencore CEO Ivan Glasenberg has become a fixture at the St. Petersburg Economic Forum, an economic gathering that became known as Russia's Davos. Major Western companies and CEOs shunned the 2014 forum following Russia's annexation of Ukraine's Crimean Peninsula and warnings from the U.S. State Department. Glasenberg was one of the few top-level Western executives who attended the forum that year.
WHAT ABOUT WESTERN SANCTIONS?
A few months after Russia annexed Ukraine's Crimean Peninsula in 2014, both the United States and the European Union imposed sanctions on several Russian oil companies including Rosneft, banning Western firms from supporting their activities in exploration and production from Arctic offshore and shale projects. That put in jeopardy a landmark Arctic drilling project by Rosneft and ExxonMobil as well as dozens of other projects by Russian companies with foreign participation.
Several rounds of U.S. and European sanctions in 2014 blocked lending for Russian banks, energy and defense companies and prevented them from accessing equity or debt markets for new long-term lending.
The sanctions, however, do not cover owning shares in Russian companies. Rosneft already has a major foreign shareholder — BP, which owns 19.75 percent of the shares.
Glencore does not seem to be violating sanctions with the share purchase. The company, however, said in its statement that the deal will offer "additional opportunities, through a strategic partnership for further cooperation, including infrastructure, logistics and global trading." Helping Rosneft with infrastructure would be a breach of the sanctions, and it is not clear right now how the deal could be implemented in this respect.