London/Abu Dhabi — A year ago Ivan Glasenberg was fighting to save his company from short sellers. Today, the CEO of Glencore is back to doing what made his reputation: cutting deals that shake up global commodity markets.
Making a big bet on both the battered oil industry and Vladimir Putin’s Russia, Glencore and Qatar’s sovereign wealth fund joined forces to buy an $11bn stake in Rosneft, the Kremlin-run oil producer that pumps more crude than Exxon Mobil Corp.
Although Glasenberg is only committing $300m of Glencore’s money to the proposed deal — the rest will come from banks and Qatar — his company will be closely entwined with Rosneft, built and run by Putin’s longtime ally Igor Sechin. As part of the deal, Glencore will get to sell 220,000 barrels a day of Rosneft oil for five years and it is unlikely to end there.
Glencore expects "additional opportunities, through a strategic partnership for further co-operation, including infrastructure, logistics and global trading," the Baar, Switzerland-based company said in a statement on Wednesday.
While Glencore is the world’s second-largest independent oil trader, behind Vitol Group, it does not produce much crude. Its oil trading unit has been less high profile than the metals and coal business, where Glasenberg made the company a huge producer through the $43bn acquisition of Xstrata in 2013.
It has not made investments of a similar scale in the oil and gas industry. Until Wednesday, the biggest was the acquisition of Chad-focused Caracal Energy for $1.4bn in 2014. That ended badly when collapsing oil prices forced Glencore to write down the value of the purchase.
The Rosneft announcement signals the ascendance of oil chief Alex Beard. Until now Beard, a biochemistry graduate who joined in 1995 from BP, has been largely overshadowed by metal traders like Telis Mistakidis and Daniel Mate. Beard cut his teeth trading Russian crude oil and has sought to expand the trader’s operations in the country, including a deal to finance some of the oil exports of Rosneft two years ago.
"The deal is a huge victory for Putin, bringing much needed revenue to the cash-strapped Russian government despite Western sanctions and allowing Rosneft to expand its footprint in the global oil market by partnering with one of the world’s major oil trading firms," Jason Bordoff, a professor at Columbia University’s School of International and Public Affairs, said in an e-mail.
As well as shifting Glencore towards oil, the deal is also a huge bet on Russia and its leader. The company has long had ties with the natural resources world in Russia. The trading house was instrumental in the creation of what became United Co Rusal, the Russian aluminium giant, by providing its alumina assets in a three-way merger in 2007. Today, it owns an 8.75% stake.
The commodities trader also owns a 25% stake in Russneft, the country’s seventh-largest oil producer by output. And Glencore already trades significant volumes of Russian crude and fuel-oil. Glasenberg himself has kept close to Russian leaders, attending the St Petersburg annual business forum and travelling regularly to Moscow.
The latest move also shows Glasenberg’s confidence in Glencore’s recovery. In 2015, the company’s share price collapsed as investors challenged the ability to service its debt in a weak commodities markets. After raising cash from investors, selling assets and idling mines, Glencore was able to reinstate dividend payments in November.
Bloomberg
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