Article / 21 December 2016 at 13:00 GMT

Rosneft share deal more than meets the eye

Russia oil and gas expert
United Kingdom
  • Rosneft foreign sale not a done deal
  • Financing details remain a sticking point
  • Second stage 'might take a a while'

Rosneft HQ
Rosneft headquarters in Moscow: the company's much-discussed deal remains less final than some headlines might lead you to believe. Photo: iStock 

By Nadia Kazakova

To the untrained eye, Rosneft's December 12 press release on the sale of a 19.5% stake to a foreign consortium sounds like a done deal. A careful read, however, shows that while the sale agreement was signed, the financing details of the transaction were all mentioned in the future tense. 

Glencore's press release on the sale date made the situation clearer. The proposed transaction, it said, "is conditional on the finalisation of all relevant financing, guarantee and other agreements and is expected to close in mid-December 2016".

In other words, a conditional sale agreement has been signed but it will only come into force when the financing side is in place and signed off. 

As of December 19, the main arranging bank – Banca Intesa Sanpaolo – has been still considering its potential involvement in the transaction, rather than wrapping up the deal as expected. 

Delays in such massive and complex deals are often inevitable, but in this case the Russian government already received the full amount for Rosneft's shares on December 16.  

The Russian government then had to come forward with an obvious explanation, stating that the money has been coming not via the foreign exchange, i.e. the consortium, but from "other sources".

Putting together the available data, it is likely the Rosneft share sale has so far been financed by Russian banks, which, in turn, might have received their cash directly from the central bank of Russia. 

A possible two-stage sale scheme for Rosneft's shares:
Source:, author's estimates

On December 16, when the government received 710.8 billion roubles from Rosneftegaz for the stake, Russian banks received 705 billion roubles in one-day repo loans from the central bank. The cash has been paid to the government (i.e. it did not increase rouble liquidity), but it is still essentially money printing and these roubles (and much more) would re-appear in the banking system as the government pays wages, loans, and other dues later this month (and earlier next when one-off pension compensation is paid).

This first stage of the sale should be followed by the second one, when the foreign consortium does finally sign off the deal with various boards, layers, and supervisory banking authorities. It might take a while – weeks if not months. 

The rushed pre-announcement of the deal in early December, however, had meaning insofar as it helped to create the illusion of a back-to-back transaction. Hence, the rouble printing would not look as bad, as it would be (in theory) followed by an inflow of hard currency. 

The second stage of the deal might take a while. The FX, if and when it arrives, is likely to go to the Russian financing banks (for example, Gazprombank) and flow straight out to repay FX debts (of Rosneft or any other entity). 

This is probably positive for the current account, but would make little difference for the amount of roubles that the central bank would need to print to cover the budget deficit in the coming weeks. 

Russian Central Bank
Russia's central bank: Ink and paper deliveries incoming... Photo: iStock 

As to the financing engineering involved in Stage 2 of the deal, it might look complex but it could be done with a mix of collaterised debt from foreign banks (led by Intesa) and unsecured loans from Russian banks (led by GazpromBank or some other). Russian banks and Rosneftegaz could pick up equity exposure on Glencore's portion of the debt through options. 

It might take some time, though, to arrange. It would be an altogether different story, of course, if it simply unravels...

Meanwhile, the central bank might need to use all of its ammunition trying to stabilise the rouble over the coming weeks. 

— Edited by Michael McKenna

Nadia Kazakova is a specialist on Russia, particularly the oil and gas sector


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