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China invests $9.1 bln in Rosneft as Glencore cuts stakes

Published: Updated:

Chinese conglomerate CEFC will buy a 14.16 percent stake in Russian oil major Rosneft for $9.1 billion from a consortium of Glencore and the Qatar Investment Authority, strengthening the energy partnership between Moscow and Beijing.

CEFC China Energy has grown in recent years from a niche oil trader into a sprawling energy conglomerate and the transaction will allow China, the world’s second largest energy consumer, to boost cooperation with the world’s top oil producer.

The deal comes as the United States imposes a new round of economic sanctions on Russia, making it difficult for large Western firms such as Glencore to develop partnerships and increase ties with state-owned firms such as Rosneft.

Glencore said in a statement that CEFC will buy shares at a premium of around 16 percent to the 30-day volume weighted average price of Rosneft shares without naming the price. A CEFC spokesman said the company would pay $9.1 billion.

Rosneft’s market capitalization stands at $57 billion and the deal makes it one of the largest investments ever made by China into Russia.

Glencore and QIA will retain stakes of 0.5 percent and 4.7 percent in Rosneft respectively.

Russia tops the list of Chinese crude suppliers where it competes with Saudi Arabia, the world’s largest oil exporter.

Putin’s ally

Rosneft is run by Igor Sechin, a close ally of President Vladimir Putin.

Last month, Washington imposed further sanctions on Moscow in the strongest action against Russia since 2014 - in part as a response to conclusions by US intelligence agencies that Russia meddled in the presidential election.

On Friday, Sechin said QIA and Glencore cut the stakes partially because of a decline in the US dollar against the euro, which made debt servicing more expensive.

Sechin told reporters CEFC would get access to Rosneft’s oil fields and petrochemical projects in East Siberia to guarantee bigger synergies.

"From Rosneft’s point of view, the arrival of such a partner is positive as it shows that the foreign investors still keep their interest to the Russian oil industry," said Alexander Kornilov from Aton brokerage in Moscow.

CEFC said the deal would give it annual equity oil production of 42 million tons (840,000 barrels per day) and access to oil and gas reserves of 2.67 billion tones (20 billion barrels).

The deal will be China’s second largest oil and gas acquisition after the $15.1 billion purchase of Canada’s Nexen by CNOOC in 2013. Earlier this decade, Beijing also loaned $25 billion to Russia to help it build a pipeline from Siberia.