Vitol, the world’s largest oil trader, is in discussions to extend an additional $2bn in financing to Rosneft, giving the Russian state oil company further firepower to drive its rapid expansion, according to a latest Financial Times report.
In a landmark deal last year, Vitol and Glencore agreed to lend $10bn to Rosneft to help it finance the acquisition of TNK-BP. In exchange, the trading houses received a guarantee of future oil supply, making it one of the largest oil trading deals in history. Vitol is now in advanced discussions to lend Rosneft a further $2bn, according to several people with direct knowledge of the matter, in exchange for supplies of refined oil products over the next five years.
The deal, the terms of which are still being finalised, would add to Rosneft’s financial might as it aggressively expands to become one of the most dominant companies in the global oil and gas industry. It would also help Vitol consolidate its strong position in the important Russian oil market. So far, the negotiations have not been affected by the situation in Ukraine. Rosneft shares fell 4.1 per cent Monday, March 4th, doing better than the rest of the tumbling Russian market because of rising oil prices.
Led by Igor Sechin, a former deputy prime minister of Russia and a close ally of president Vladimir Putin, Rosneft has undertaken a string of acquisitions which have transformed it into the world’s largest listed oil company by production, ahead of ExxonMobil. In addition to the $55bn purchase of TNK-BP, the company has in the last year bought Itera and Sibneftegas, two significant Russian gas producer, the gas business of Alrosa, the diamond miner, and refineries in Germany and Italy.
The speed and scale of Rosneft’s growth have caused concern in some corners of the Russian oil industry that the company is using its market position to beat down prices of suppliers and contractors. Analysts have also questioned the company’s Rbs1.9tn debt pile. While the company late last year received the first tranche of a $70bn prepayment oil deal with China, Mr Sechin rejected suggestions that he use the funds to pay down debts. "We will spend these funds on strategic projects,” he said last month, leading analysts and investors to suspect that the company had further acquisitions in its sights.
The deal with Vitol comes as Rosneft has for some time been negotiating a long-term supply deal with BP, which owns a fifth of its shares. The BP deal may now be smaller than had previously been envisaged, industry executives said. BP and Vitol declined to comment. Rosneft said that it was "now working on two deals with longstanding reliable partners”. "The deals imply entering into long-term (five-year) contracts on a partial prepayment basis,” the company said. "The prepayment size and terms are at present [being] discussed by the parties and will be agreed on market conditions.”
