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Glencore, Qatar Sell 14% Stake in Rosneft to Chinese Energy Company -- 2nd Update

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09/08/2017 | 05:55pm CEST
By Scott Patterson and James Marson 

Glencore PLC and Qatar have agreed to sell the bulk of their nearly 20% stake in Russian state-controlled oil giant PAO Rosneft to a Chinese energy company in a deal worth about $9 billion.

The deal, announced by Swiss commodity miner and trader Glencore on Friday, gives CEFC China Energy Co. a 14.2% stake in Rosneft, deepening a growing economic relationship between China and Russia. It also adds a new twist in a complex agreement to raise money for a cash-strapped President Vladimir Putin by selling off part of the crown jewel of Russia's energy industry.

Glencore and the Qatar Investment Authority formed a consortium to buy a 19.5% stake of Rosneft in an $11.3 billion deal last December, giving Moscow a cash infusion during a budget crunch caused by declining oil prices.

But, in the deal's complex structure, Glencore's actual equity stake was only about 0.5% of Rosneft and Qatar's about 4%. The rest of the deal was financed by Russian banks and Italy's Intesa Sanpaolo SpA, which had planned to spread its risk by syndicating the loan to other banks.

The Wall Street Journal reported in June that Intesa was having trouble finding banks willing to help them finance the deal.

The deal makes CEFC Rosneft's third largest investor behind the Russian state, which owns half of the company, and BP PLC, which owns about 20%.

Rosneft Chief Executive Igor Sechin, a close ally of Russian President Vladimir Putin, said in a televised interview Friday that the high cost of servicing the debt behind the consortium's investment prompted the Glencore and Qatar to seek another investor. Glencore will retain its 0.5% stake in Rosneft and Qatar will keep its 4.7% stake.

"For us, it's a serious event, which forms in a finalized shape the shareholder structure of our company," Mr. Sechin said. "We are pleased that it's a Chinese corporation."

CEFC, founded in 2002, is a private energy trading company and investment bank that has been expanding its international presence in recent years. In March it agreed to pay $100 million and provide $175 million in debt financing for a 19.9% stake in New York financial services firm Cowen Group Inc. A CEFC representative didn't immediately respond to a request for comment.

Intesa said in a statement that its EUR5.2 billion funding for the consortium would be fully reimbursed following the sale. CEFC and Qatari representatives couldn't immediately be reached for comment.

Japanese investors had also looked at investing in the stake, a person familiar with the matter said.

The sale of the stake to investors outside Russia last year was seen as a boon for Mr. Putin, whose country is under sanctions from the U.S. and European Union over its military interventions in Ukraine.

Mr. Putin has looked to China for investment and trade as relations with the West have deteriorated since Moscow seized Crimea in 2014.

Investments have been slower and smaller than some officials had hoped. But China has taken stakes in energy and other commodities projects and firms that Russia had long been loath to cede to its giant neighbor.

China has signed large deals for oil imports, an agreement with Russian state natural-gas giant Gazprom which is building a pipeline to make China and an investment in a flagship Arctic Russian LNG project.

Before Friday's deal announcement, Rosneft signed a contract Sunday to allow CEFC to sell Russian oil supplies. Glencore also retains its right to purchase an additional 220,000 barrels of oil a day from Rosneft for five years for its trading business, a deal it struck with last year's investment.

Glencore didn't disclose a sale price, saying only that a 14.16% stake in Rosneft was sold Friday "at a premium of about 16% to the 30-day volume weighted average price of Rosneft shares." A Wall Street Journal analysis put that price at the equivalent of $9 billion.

Jon Sindreu and Giovanni Legorano contributed to this article

Write to Scott Patterson at [email protected] and James Marson at [email protected]

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