Streetwise Professor

October 28, 2014

Gunvor Cutting Back in Russia: Jumping or Pushed?

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 9:14 am

Gunvor announced plans to sell assets in Russia:

Oil trading house Gunvor is seeking to cut exposure to Russia by selling assets in the country which had long been one the main generators of its growth and profit before the United States imposed sanctions on its co-founder.

. . . .

Now the company, led by the veteran Swedish oil trader, is looking to rebalance its asset portfolio and divest a significant part of business in Russia to acquire new assets in Europe, the United States, Asia and South America.

“Since a significant portion of our investments are in Russia, over time Gunvor will be looking to sell selectively part of those assets. We do not expect this will have any impact on our existing trading activities in Russia,” the company said on Sunday.

I am somewhat amused by the statement that the company “expect this will have any impact on our existing trading activities in Russia,” because it is well known that it has been cutting back on these activities for some time.

Some obvious explanations include a genuine desire to rebalance its asset portfolio, a need for cash due to persistent suspicions about the company leading to constraints on its ability to access the credit markets, and a desire to put paid to those suspicions by cutting back exposure to Russia.

Knowing the way Russia works, I would advance another hypothesis for Gunvor’s actions. It has been told to sell out, because someone covets those assets, and because after Timchenko’s departure (and Putin’s being cashed out?) the company has lost its krysha. Russia is the country of “nice little port you have here. It’d be a shame if something happened to it. Or to you.” When you have something that somebody important wants, you’d better say da! and accept the price offered without complaint. Just ask Vladimir Yevtushenkov.

One of the assets that Gunvor is selling is its stake in the port in Novorossiisk. Wouldn’t you know who expressed an interest in acquiring a stake in the the port there? Yeah. Igor. And Rosneft has oil trading ambitions, and the Ust-Luga port on the Baltic could fit quite nicely into that.

So keep an eye on who buys. Given that this is hardly a peachy time to sell assets in Russia, given the country’s growing economic isolation and the fear of further sanctions, Gunvor’s announcement is quite telling. The buyer is likely to be Russian, and the set of possible buyers is quite limited, which means that Gunvor is not likely to get top dollar for these assets. If Rosneft or another national champion with close connections to Putin ends up being the buyer, my suspicions that Gunvor was pushed out of Russia will be largely confirmed.

Someone at Gunvor told the FT that Russia was “Gunvor’s heritage, not its future.” That’s definitely true. The only question is why. I strongly suspect this is not totally voluntary, and to the extent that it is, it reflects Gunvor’s judgment that the legal and economic and political risks of operating in Russia are no longer worth the candle.

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