Glencore, Qatari fund finalize deal to acquire Rosneft stake

Russia’s Rosneft oil company said Saturday that commodities company Glencore and Qatar’s sovereign wealth fund will invest $3 billion of their own funds to acquire a 19.5 percent stake in Rosneft.

Rosneft said the 10.5-billion euro ($11.1-billion) deal signed Saturday also envisages that Italian bank Intesa Sanpaolo will provide loans to finance the acquisition. It added that other unspecified banks will also provide financing and credit support.

Earlier this week, Russian President Vladimir Putin personally broke news on the deal, the largest acquisition in the global energy market this year.

The Kremlin described the privatization of Rosneft as part of 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 state will retain a controlling stake in Rosneft, 49 percent of which now belongs to private investors. BP already owns 19.75 percent of Rosneft.

“While being extremely complex to execute, this privatization deal marks itself as the largest in the history of Russia,” Rosneft CEO Igor Sechin said in Rosneft’s statement. “Despite what was a challenging market environment, we successfully completed a comprehensive project identifying strategic investors that match the long-term interests of the government of Russian Federation and those of the Russian oil and gas industry.”

Glencore’s involvement has raised eyebrows since Russia’s oil industry is targeted by the U.S. and EU sanctions, introduced in 2014 over the Ukrainian crisis.

The sanctions blocked lending for Russian banks, energy and defense companies and prevented them from accessing equity or debt markets for new long-term lending. But they don’t cover owning shares in Russian companies, so Glencore does not seem to be violating sanctions with the share purchase.

The deal, however, envisages 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.

Glencore’s participation in the deal also came as a surprise since the commodities giant is going through difficult financial times and only last year faced doubts about its ability to handle its own debts.

Rosneft said it will also sign a crude oil supply agreement with Glencore.

It quoted Glencore CEO Ivan Glasenberg as saying the company “looks forward to working with both parties to take advantage of the significant opportunities which are expected to be presented across the Russian and global oil markets.”

Putin has noted that the deal comes amid a rally in global oil prices following OPEC’s decision to cut production. At a meeting in Vienna on Saturday, Russia and other non-OPEC oil producers also agreed to cut their oil output in sync with OPEC.

Sheikh Abdulla bin Mohammed bin Saud Al-Thani, Qatar Investment Authority CEO, was quoted by Rosneft as saying that the deal “reflects our strategy of investing in high quality assets with strategic partners globally to generate long-term financial returns.”