Daily Management Review

Glencore's unexpected investment in Rosneft proves the Swiss giant feels good


Just a year ago, Ivan Glasenberg, Head of Glencore Plc, tried to save his company from the "bears". Now, we see his triumphant return. He once again confirms his reputation with deals, which redraw the global raw materials market. Glencore and Qatar sovereign fund jointly acquired a package of shares of Rosneft, Russian state oil company, which production volumes surpass indicators of Exxon Mobil Corp.

Ivan Glasenberg, picture by International Students’ Committee
Ivan Glasenberg, picture by International Students’ Committee
Glasenberg invested just $ 300 million of Glencore’s assets, and banks and Qatar will allocate the rest of 10.5 billion euro. Yet, even this relatively small amount will tie his company closely with Rosneft. Scope of the agreement covers supply of oil in the amount of 220 thousand bar/d within five years; the terms may be extended.

In a published statement, Glencore commented that the company is looking forward to further possibilities and prospects of this strategic partnership, which may have an impact on infrastructure, logistics and global trade. Glencore is one of the largest independent oil traders, second only to Vitol Group. The company’s own oil-producing activity is retracted into insignificance compared to activity in the metal mining sector and coal. In this sector, Glasenberg brought the company to level of a major manufacturer by purchasing Xstrata for $ 43 billion in 2013. 

Previously, Glencore has not made investments of this magnitude in the oil and gas industry. Up to this week, its largest acquisition was purchase of Caracal Energy for $ 1.4 billion in 2014. Afterwards, it turned out that the deal was a failure because collapse in oil prices forced the company to write off its value. The deal with Rosneft marks a rise in career of Alex Beard, Director of oil commodity department at Glencore Plc. He joined the company back in 1995, but remained unnoticed before his colleagues from metals trade.

"The agreement is a great victory for Putin. In spite of all Western sanctions, it provides influx of much-needed cash receipts in distressed state budget of Russia. In addition, partnership with one of the world's largest oil trader will allow Rosneft to strengthen its position in the world oil market", - says Jason Bordoff, a professor at Columbia University.

This acquisition not only expands presence of Glencore in the oil market, but also reflects the company's bet on Russia and its leader. Glencore has long maintained close ties with the Russian commodity market. It took part in launch of a project, which afterwards became a cradle of the country’s national aluminum giant Rusal. At the moment, Glencore holds an 8.75% stake in the company.

In addition, the oil trader has a 25% stake in Russneft, which is the 7th manufacturer in the country in terms of oil production. 

Finally, the latest agreement demonstrates Glasenberg’s belief that his company is reviving. In 2015, its shares have fallen as investors questioned Glencore's ability to service its debt in a weakened commodity market. However, the company was able to raise capital through investors’ support, sale of assets and idle mines, and resumed dividend payments in the last month. 

source: bloomberg.com