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. Last Updated: 07/27/2016

Chinese Lend Rosneft $6Bln for Yugansk

A consortium of Chinese banks has come up with a $6 billion loan to facilitate state-owned Rosneft's controversial takeover of Yuganskneftegaz, Finance Minister Alexei Kudrin said Tuesday, shedding some light on what's become one of the murkiest asset sales in recent Russian history.

Kudrin told a news conference that state-owned Vneshekonombank was borrowing "$6 billion from Chinese banks to lend to Rosneft."

His comments came after more than a month of official silence and investor speculation over where the oil major was getting funding for its $9.3 billion takeover of Yugansk in a deal that marked the country's first effective renationalization since Soviet times.

But questions continued to swirl Tuesday over whether Rosneft had actually paid for Yukos' main production unit, as an official with knowledge of the Chinese deal said the $6 billion had not been transferred yet and Kudrin indicated the federal budget had yet to receive revenue from the sale.

"As for the money paid for Yuganskneftegaz, this money initially goes to the Federal Property Fund's account. Those revenues will later be distributed among the budgets of regions where Yuganskneftegaz used to work, and where companies that paid those taxes were located, and the federal budget," Kudrin said.

Two weeks ago, a spokeswoman for the Finance Ministry said the funds had already been transferred to the federal budget.

A spokesman for the Federal Property Fund, Alexander Komarov, said Tuesday that the fund had not received any revenues from the sale and had only handled the $1.7 billion deposit transferred by Baikal Finance Group, the front company that acted on behalf of Rosneft to win the auction. "Our contract only stated that we would conduct the sale. That did not include settlement. We've completed our work," Komarov said. "All questions over settling the transaction should be addressed to the Justice Ministry."

Justice Ministry officials have repeatedly refused to comment on whether they have received the funds for Yugansk, as have officials at the Moscow department of the Court Marshals Service. Rosneft has said it transferred payment in full into the Court Marshals Service's Moscow department account at MDM-Bank before it took over Yugansk on New Year's Eve.

Yukos CEO Steven Theede, who has been in London since December, said in an interview published Tuesday that his company had not received any official notification from the Federal Property Fund that the unit had been sold and that the money had been transferred into the federal budget. He added that Yukos had not received any confirmation from the Federal Tax Service that its tax debts had been reduced as a result. Yugansk was sold off as partial payment for more than $28 billion in back tax charges levied against Yukos.

"This is unacceptable," Theede said in the interview with Gazeta.ru. "What happened on Dec. 31 was essentially an illegal expropriation of our key unit. ... There were masses of violations."

A spokeswoman for the Federal Tax Service, Yelena Tolgskaya, refused to comment Tuesday on whether Yukos' total tax debt had been reduced as a result of the sale.

Federal Energy Agency chief Sergei Oganesyan told a separate news conference Tuesday that Rosneft had received funding for the acquisition from Russian banks. But analysts said the government's recent overtures to India and China over the deal appeared to indicate that the loans, if extended at all, were extremely short-term and that Rosneft now appeared to be scrambling to cover its liabilities. Industry and Energy Minister Viktor Khristenko publicly offered at the end of last year for China National Petroleum Corp. to take a 20 percent stake in Yugansk. India's ONGC has been in talks with Rosneft over possibly buying a 20 percent stake, but CNPC appears to have distanced itself so far from taking equity in Yugansk.

"The strong assumption is that on Dec. 31 Rosneft paid nothing more than an IOU and since then they have been looking for a way to fund it," said Alfa Bank's chief strategist Chris Weafer.

The Chinese bank loan appears to be aimed at securing long-term oil supplies from Rosneft.

Oganesyan, who was a vice president at Rosneft until his appointment to the Federal Energy Agency last March, said Tuesday that Rosneft had secured $6 billion in financing from CNPC backed by future oil supplies. "The two companies have agreed on the prepayment for long-term oil deliveries," he said.

An official with knowledge of the deal said Kudrin and Oganesyan were talking about the same $6 billion loan.

"They're both talking about the same thing. One is talking about the essence of the deal, the other is talking about the technicalities," said Sergei Sanakoyev, the head of the Russo-Chinese Center for Trade and Economic Cooperation. "The money is being lent by Chinese banks to a Russian bank, but the money deposited by the Chinese belongs to CNPC and the loan is headed for Rosneft as prepayment for supplies."

Sanakoyev said the volume of oil Rosneft had agreed to send had not changed since an earlier supply agreement to ship 48 million tons of crude to China by 2010. "Russia will transport the maximum it can by rail. Nothing has changed here," he said.

But he added that because China was paying so far in advance it was likely that Russia would have had to offer some compromise to swing the deal. "I hope they have not racked up too many losses over this," he said. "If this is just $6 billion, then if you do the math it sets an average price of $17 per barrel for these supplies."

Sanakoyev said, however, that although the contracts had been signed, it was not clear whether the money had arrived in Russia. "As far as I know, the money has not been transferred yet," he said.

Officials at Vneshekonombank could not be reached for comment Tuesday. Rosneft declined to comment on the deal.

Analysts said the deal looked to have been structured via the banks rather than directly from company to company to avoid any potential legal consequences for CNPC, which is listed on the New York Stock Exchange.

Yukos obtained a U.S. court ruling barring participation in the Yugansk sale, and were the Houston court to uphold the oil major's application for Chapter 11 bankruptcy protection, the foreign assets of any participant in the deal potentially face seizure.

"CNPC has put a couple of layers between it and Yugansk," Weafer said. "The lack of transparency surrounding the deal is not likely to be lifted until it's clear what will happen in the Houston court."

The court is due to renew hearings into the Yukos case on Feb. 16.

Tim Osborne, a director for Yukos' majority owner, Group Menatep, said Tuesday that the involvement of the Chinese banks was clearly aimed at complicating the deal and said they would also face legal action.

"This looks like a tacit admission by Rosneft and the Russian authorities that they knew all along what they were doing was illegal and contrary to the rule of law," he said. "Why else would they be going through all these hoops and putting up all these smoke screens to hide the theft of Yukos' assets? This is nothing short of a complete admission they have been acting illegally."

State-controlled Gazprom had been expected to win Yugansk at the auction outright. But after the Houston court issued a temporary stay against the sale, it backed off and Western banks pulled out of financing its bid.

Osborne said the involvement of the Chinese banks could complicate their legal case. "It makes it more difficult, but most banks have assets in the West. We will find them and we'll sue them."

"As far as I understand, Rosneft is already in default on making payments on Yugansk. But as a state-owned company they have been given a lot of leeway," he said.

Others have speculated that Rosneft could have dipped into Central Bank reserves to finance the acquisition. Central Bank reserves fell by almost $6 billion from $124.6 billion on Jan. 7 to $118.7 billion on Jan. 21, marking the first large drop in reserves in years. Some analysts said the fall could be attributed to an end to ruble appreciation against the dollar. But others said the coincidence appeared to look too great.

"This is the first indication that they borrowed from the Central Bank," said Stanislav Belkovsky, the head of the Council for National Strategy. "As soon as the Chinese transfer the money, the reserves will go back up."

"Nobody has been able to make a definitive link between the reserve drop and Yugansk," said Stephen O'Sullivan, co-head of research at United Financial Group. "But really the whole process has involved moving money from one pocket of the state into another."

The massive increase in the stabilization fund from 522.3 billion rubles on Jan. 1 to 740 billion rubles on Feb. 1 announced by Kudrin on Tuesday did not appear to come as a result of payment for Yugansk being transferred to the federal budget, analysts said.

Every Feb. 1, last year's budget surplus is transferred to the stabilization fund. This year, the government notched up a massive surplus, including funds from the privatization of its stakes in LUKoil and Magnitogorsk as well as from about $4.5 billion in back tax payments from Yukos, said Al Breach, chief economist at Brunswick UBS.