capital due to sanctions and falling oil prices, in mid-2016, Putin instructed Sechin to sell off a fifth of Rosneft to foreign investors. But traditional sources of financing to buy the Rosneft stake were scared off by the fiscal uncertainties introduced by sanctions... and the prospect of Russia war hawk Hillary Clinton commanding the White House. Shortly after Trump won the electoral college vote and became president-elect, Rosneft’s unsanctioned holding company, Rosneftegaz, sold 19.5% of its Rosneft shares for $11.3 billion to an offshore consortium of interlocking shell companies led by the Godzilla of commodity trading, Glencore. The consortium included the sovereign Qatar Investment Authority, which owns a large stake in Glencore, and the unknown beneficiaries of a Cayman Islands corporation. The proffer was super-sweetened by Rosneft raising its dividend to 35% of its net income. A sanctioned Russian bank called VTB largely financed the convoluted, still-opaque terms of the deal as it bypassed sanctions, generating black ink for Putin’s budget... and fees for brokers... Nine months later, the Glencore-fronted consortium made a deal to sell nearly 75% of its Rosneft stock to a private firm, CEFC China Energy. The $9 billion deal rivaled the previous deal for non-transparency. Reportedly, it included loans VTB bank to support the sale price... and more broker fees... The owners of CEFC China Energy are not publicly disclosed. But in January, Patrick Ho, an official with a foundation operated by CEFC China Energy, pled not guilty in the
Southern District Court of New York to charges of offering $2.9 million in bribes to politicians in Chad and Uganda on behalf of CEFC China Energy, which is gobbling up energy, mining and retailing firms around the globe. And on March 1, the South China Morning Post reported that Chinese authorities have detained Ye Jianming, head of CEFC China Energy. Sanctions don’t seem to be stopping Putin from rolling up the opposition in Ukraine or Syria... or from trolling Facebook. But the restrictions are reshaping world oil markets. The Rosneft deal with CEFC appears to be dead... which leaves Rosneft in the lurch for desperately needed foreign exchange. CASH COW Putin and Sechin have been sucking cash out of Rosneft to finance the state budget. At the same time, Rosneft is incurring a massive debt load to finance politically risky expansions into the oil fields of Iraqi Kurdistan, Venezuela, Vietnam, Brazil, and India. And instead of the usual business practice of reinvesting profits by funding organic growth or paying down old loans, Rosneft has the bad habit of financing its newest acquisitions by refinancing unsustainable loans, say oil- industry analysts such as Craig Pirrong at University of Houston. That creates more broker fees... Rosneft experts agree that there are many
78 March 2018
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