Streetwise Professor

January 4, 2017

The Rosneft Deal: One Step Closer to Reality

Filed under: Commodities,Derivatives,Economics,Energy,Russia — The Professor @ 4:51 pm

After-a thinking-a about it-a for almost a month-a, Italian bank Intesa Sanpaolo has apparently decided to stump up €5.2 billion to fund the Rosneft-QIA-Glenocre transaction.

A few interesting aspects to this, beyond that it took so long to commit after Rosneft said it was a done deal in the first week of December.

First, by my arithmetic, the deal is still short about €1.9 billion short. Intesa is putting up €5.2 billion, QIA €2.8 billion, Glencore €.3 billion. That’s €8.3 billion. The deal is for €10.2 billion. So where’s the other money coming from?

Second, Intesa is saying they will lend now, and syndicate the loan later. That’s not unheard of, but it’s not typical. Not least because Intesa’s bargaining position is weak now: potential syndicate members will know that Intesa has to unload the risk, and be patient in the hope of getting better terms.

Third is this gem at the end: “The underwriting, to be syndicated, has strong protection in terms of collateral and guarantees.” So who is providing the guarantees? What is the substance of the guarantees?

We have Glencore’s statement about indemnity, and some basis to believe that Gazprombank is the provider. But does QIA have a guarantee as well?

In any event, the deal looks more real than it did last month. But there are still open questions.



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  1. Do you have a list of plausible hypotheses for how to think about the underlying deal, or is it really too difficult to tell, given the publicly available info? I just don’t have a good sense of why you think this story is important, because I don’t fully understand what you see as the most likely “hidden” aspect of the deal that is taking place.

    Comment by Sam — January 4, 2017 @ 9:06 pm

  2. Time to short ISP.MI, Glen.L, and Qatar!

    Comment by eric — January 4, 2017 @ 11:05 pm

  3. @Sam-It’s interesting to me because it provides yet another example of the Potemkin-esque aspects of Putin’s Russia. Although it is of importance from an energy market perspective, in the context of the current hysteria about Russia and Putin’s alleged virtuosity, it has broader implications. Specifically, it betrays Russia’s very shaky economic foundation. One of the commanding heights of the Russian economy sells at a paltry price (compared to companies with similar reserves, etc.), and even then the deal cannot be done without a lot of chicanery.

    I don’t know the specifics of the deal, but from what I can piece together, both from the dogs that bark and those that don’t, is that contrary to Putin’s earlier promises, a good fraction of Rosneft is not being purchased or funded by outside investors, but by Russian banks. In that respect it is effectively a way for Russia to borrow to meet pressing budgetary needs without issuing government debt. There is very much an Enron feel about this. And remember that Enron engaged in extensive financial engineering to conceal its parlous financial condition.

    So my interest is driven in part by my interest in the players–Rosneft/Sechin, Glencore, Putin–and my interest in financial engineering, but also because of the broader message it sends about Russia and Putin. And that message is that Russia’s economic foundation is very weak.

    The ProfessorComment by The Professor — January 4, 2017 @ 11:06 pm

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