Glencore Russneft stake cut by debt deal
Glencore’s stake in Russneft is set to be heavily diluted as the oligarch founder of the Russian oil group moves to restructure its debt and reinforce his controlling position ahead of a possible flotation.
Mikhail Gutseriev is in the process of swapping $1bn of debt owed to another of his companies into new shares in Russneft.
Once this debt-for-equity swap is complete, Mr Gutseriev’s stake in the privately owned oil company will reach almost 75 per cent, while Glencore’s will be cut to 25 per cent plus one share, down from 46 per cent at the start of the year.
News of Mr Gutseriev’s move is the latest twist to the long relationship between Glencore and one of Russia’s richest and most resilient businessmen.
Mr Gutseriev, who is Russia’s 16th richest man according to Forbes, turned to Glencore for financial backing after a dispute with the Kremlin cost him his job at state-backed Slavneft 14-years ago.
He founded Russneft in 2002 and quickly made it a top-10 producer of Russian crude. Loans from Glencore totalled more than $2bn over the next eight years, according to a prospectus for the London-listed commodity house’s 2011 initial public offering.
In return, Glencore was given stakes in Russneft’s subsidiaries and the right to market the oil it produced, a boon for a commodity house that requires access to other companies’ barrels for trading.
This year, Russneft will produce about 150,000 barrels a day.
Russneft and Glencore both declined to comment on the debt-for-equity swap, which was first reported by analysts at rating agency Moody’s who have access to the Russian group’s management. But a person close to the company confirmed that Glencore’s shareholding would fall in August.
Industry experts said that while Glencore’s stake in Russneft would shrink, the company will be less indebted.
At the end of last year, Russneft had total debt of about $2.4bn, including almost $2bn owned to state-backed Bank VTB. After the debt-for-equity swap and deals struck by Mr Gutseriev, this will fall to $1.3bn, Moody’s said, under improved terms.
Last month, Mr Gutseriev told RBC, a business daily, that he was considering floating up to 10 per cent of Russneft’s shares on the Moscow stock exchange, estimating a total value of $4bn-$5bn.
Glencore, however, placed a carrying value of $685m on its 46 per cent stake, implying an equity valuation of $1.5bn.
Glencore’s offtake deal, which covers all of Russneft’s exports, will continue, although it was unclear whether the terms will stay the same. “There is a dialogue between the shareholders,” said one person familiar with the discussions.
Mr Gutseriev lost control of Russneft after he was charged with violating the terms of his oil licence and failing to pay taxes in 2006. He denied the charges, but the next year fled to London and sold the company to Oleg Deripaska, owner of Rusal.
Three years later, the charges were dropped, and he returned to Russia to begin rebuilding his stake in the company.
After regaining control of Russneft in 2013, Mr Gutseriev set about tackling its debt load and pursuing a merger with his other oil and gas operations — including Neftisa, the company he founded while in exile in London.
Glencore’s stakes in Russneft’s subsidiaries and almost $1bn of borrowings were converted into a 46 per cent stake in the parent company last year.
Glencore said in its 2015 annual report that while it held a significant stake in Russneft it could not exercise “significant influence over the financial and operating policy decisions” so carried it in its accounts as an investment.