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Posted on 11 December 2016, 5:58 PM

The Rosneft Deal and What it Means for Glencore and the Qatar Investment Fund

Other Insights on Related Shares: GLEN.L, NG..L

Glencore is the leader of a consortium that, together with Qatar's global sovereign fund, Qia, bought a 19.5% stake in Rosneft, the Russian oil company. Rosneft is one of the leading Russian blue chip companies, and the flotation is part of a process to partially privatise the oil company, in a bid to reduce the debt level of the Russian state, hit by the twin storms of falling oil prices amid economic sanctions imposed following events in Crimea and Eastern Ukraine. News of the deal, worth 10.5 million Euros, was welcomed by investors, and sent the Russian stock price shooting up by over 5% on the Moscow stock exchange.


Vladimir Putin's spokesman, Dmitri Peskov, has described the deal as “the largest transaction of 2016 in the global energy market”. It comes on the heels of another large energy deal, which again had the Qatar investment fund at its centre: the takeover of the National Grid, together with a consortium of other investors. The National Grid deal has a total value of £13.8 billion, with the energy network operator collecting £3.6 billion in cash, owning 39% in the new holding company for gas distribution, and receiving £1.8 billion by way of additional debt financing. Once completed, the National Grid will distribute to shareholders £4 billion in special dividends and buy backs.


While the acquisition is for QIA, the continuation of an organic strategy of expanding its foothold in Eurasian gas markets, for Glencore it represents a remarkable turnaround. Only half a year ago, its fortunes were down, reeling from the global downturn in commodity prices. This month, however, it completed a programme of asset sales aimed at lowering debt and enabling it to resume dividend sales. The Rosneft deal is a boost for Glencore’s oil trading arm, one of the largest in the world among independent trading houses. The Swiss trading group already had a five-year deal which gave it priority in selling Rosneft oil, signed in 2012: now it has an agreement in place to sell an additional 220,000 barrels of crude a day from the Kremlin-run oil giant.


Worth $170.5 billion in sales in 2015, which is far above the turnover of many other fortune 500 companies, the Swiss commodities conglomerate is an incredibly valuable and powerful company, and for its size it goes largely unnoticed. It is the only sizeable company of its kind that mines, ships, and trades different commodities internationally. It launched the biggest IPO LSE traders had ever seen, and the company controls 50% of the world's open copper market, 45% of lead, and 60% of zinc. Its traders, based in its headquarters in rural Switzerland, outside Zurich, and led by its 59 year-old CEO, Ivan Glasenberg, bargain their way into buying, moving, and selling thousands of tonnes on commodity sales, making small margins which end up in vast profits. One of the biggest beneficiaries of the long China-driven raw materials boom, its fortunes reversed with the collapse of the commodities market in Asia in 2014.


Glencore has rebounded from a low of 73.5p to 300 this year, earning a yearly return of over 251%, although its earnings per share is still negative, at -0.34. Its market capitalisation is £43.184 billion, and it has £14.395 billion shares outstanding.


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