Business as Usual without U.S. Investment?
Rosneft has five-year advanced payment agreements with Glencore, Vitol, and Trafigura, based on a former commitment of $12 billion from U.S sources. The funds were to be received and invested in TNK-BP. In late June, BP and Rosneft made an agreement, based on $12 billion worth of oil-products to be distributed over the course of five years, with the advanced payment of at least $1.5 billion. No information is available as to whether Rosneft received the funds.
The representative of OFAC, the subdivision of the Treasury Department that monitors foreign assets, stated to the press that she is not empowered to comment on any particular case. Nevertheless, any interested party from the USA is free to contact OFAC for assistance. OFAC’s representative explained that the sanctions are being published on the OFAC website. No US entity can provide financial assistance to Rosneft to cover its newly created debt, which includes obligations, credits, credit extensions, trusts, bills of credits, credit guarantees, bank acceptances, discount bills, and commercial bills. Any operations the new debt funded are restricted. Representatives from Glencore, Trafigura, BP, and Vitol all refused to comment.
Professor Craig Pirrong of the Finance Department at the University of Houston commented that the classification of such debt is very complicated, comprising syndicated loans with traders as intermediaries and guarantors. “Loans without a right of regress means that the credit risk is left to the banks,” he recently observed. “Would such a loan from JPMorgan or Citi be considered a loan? A loan granted to Rosneft in particular?” he asked and concluded that “from an economic perspective, this is a loan but not a legally enforceable one.” Prof. Pirrong thought that such a vague description of “debt” was purposefully created to dupe the US banks: “the Treasury Department has used such ambiguity in order to enforce sanctions.”
“These concepts are very vague and hazy”agrees Dmitry Magonya, the managing partner of the ART DE LEX law firm. “The concepts enable managers to make necessary decisions. However, the outcome only would be realized after the EU applies sanctions, as the total activity between the USA and Russia is unclear.”
The lawyers say that Rosneft advanced loans before sanctions went into effect; however, it is uncertain whether the sanctions only apply to new debts.
“If there is a framework agreement according to which you may borrow money from time to time, then a regular money transfer might fall under sanctions,” says Clair Hatcher, a representative of the English law firm of Clyde & Co.
“Traders do not have high risks with prepayment bargains, which amount from 5 percent to 10 percent of the loan amount,” says Prof. Pirrong. “I know that traders include such clauses in agreements for prepayment so that they may claim back money if a bargain appears to be a subject of sanctions.”
“Sanctions are illegal and groundless,” argues a Rosneft representative. “Still our money flow allows the company to continue current projects and accomplish the key objectives of our strategy and dividend policy as well as pay loans and abide by present obligations.”
The Rosneft net debts comprise RUB 1.6 billion. This year, Rosneft has to pay off or refinance RUB 470 billion. RUB 649 billion will be due in 2015. According to Morgan Stanley, Rosneft has RUB 700 billion to pay off as short-term debt. Rosneft also will receive a prepayment from CNPC. Moreover, in May, Rosneft and Venezuela PDVSA agreed on a supply-based contract that included a $2 billion prepayment.”
“Rosneft will receive more loans from Asia and alternative markets,” Mr. Magonya observed. “Nevertheless Rosneft keeps silent about this issue.”
This translation and summary are based on an article that appeared recently in Vedomosti. To read the full article, go here.
