Page 2 of 2 Russia's next revolution has started - at the bank
By John Helmer
almost $9 billion, and short-term pressure for $2.3 billion. TNK-BP owes $1.9
billion in aggregate, but only $277 million must be funded soon.
Rosneft is under the heaviest immediate pressure. This pain translates, for
Sechin's rivals, into potential political opportunity. If Sechin stumbles in
the Rosneft refinancing, then his rivals in government may argue that Rosneft
should be reorganized. That would mean a new state team taking over from Sechin
loyalists.
Rosneft must pay $750 million of debt by December 31 and $2.4 billion three
months later. Given that the price of oil is falling, and production is not
increasing to offset this, nor foreign demand for
oil exports, Rosneft must test the full extent of its political clout to secure
cash. It has already refinanced $2.35 billion of debt on September 17, using
4.67% of its shares (out of 9.44% treasury stock) as collateral. Whatever VEB
decides to loan Rosneft, the company has other state lenders to whom it can
turn.
There are reports that one option is a $2 billion credit line from a consortium
of Sberbank, the state savings institution; Gazprombank, which is owned by the
state through Gazprom; and VTB, a state controlled bank. More credits might be
available bilaterally from Sberbank and VTB.
In addition, Rosneft is negotiating an export finance facility with Chinese
banks that is tied to the flow of crude oil to China, currently running at 10
million tonnes per annum (192,000 barrels daily). China wants much more, but
overland delivery by pipeline through eastern Siberia is taking time to build.
Tanker delivery by sea is costly, and no longer so profitable to arrange for
traders such as Gunvor, which dominates Rosneft's marketing of oil. The
Geneva-based Gunvor is owned by Gennady Timchenko, a close ally of Sechin. What
happens to him, and their alliance, is now in the balance.
Gunvor has told Asia Times Online it is seeking finance to expand Timchenko's
stakes in the Baltic energy trade, including a new Russian oil terminal at
Ust-Luga, as well as rail transportation of oil, tanker fleet operations, and
gas exports.
The decline of Russian equity values has reached the level where the underlying
asset value is based on a price of a barrel of oil of $50 to $60, industry
analysts have told Asia Times Online. If this materializes in the export
markets, the industry will see Rosneft demanding an end to trade discounting
under the market price. It will also cause a significant delay in the sale of
shares of the merged and privatized tanker fleets of the two state-owned
shipping companies, Sovcomflot and Novorossiysk Shipping Company (Novoship).
Merged, as Sechin has arranged, and privatized as Timchenko wants to see, the
combination of Sovcomflot and Novoship makes one of the world's largest oil
shipping companies. If Rosneft catches a cold, Russian ports, pipelines, and
fleet companies, which depend on it, may begin to suffocate.
"According to the exchange quotes, the share price of Novoship has dramatically
fallen even from the price of Sovcomflot's minority share buyout offer," said
Kirill Kazanli, a Troika Dialog analyst in Moscow. "Sovcomflot proposed $3.36
per share, while the current price is around $2 per share. The market for these
shares has simply disappeared."
Kazanali told Asia Times Online that an international IPO for the Russian
tanker group is now unlikely until 2010.
Alexei Bezborodov, a leading transportation analyst in Moscow, says that the
valuation cut reflects the oil price now, and tanker rates later. "I think
their revenues are dependent on freight rates, not on oil prices. And freight
rates don't always correlate with oil prices, although now they do. There is a
lot of news about the dramatic fall in freight rates and growth in tanker
availability. But as Sovcomflot and Novoship both operate on long-term freight
contracts, their revenues won't be affected immediately. They have contracts
roughly until May 2009."
According to Kazanli, excess capacity and falling tanker rates will strike as
Sovcomflot and Novoship must pay for new vessels. "They have very big
new-building portfolios for the next two to three years, and a long-planned
expansion of tanker capacities. This is definitely not a very attractive
configuration for the market for the next two years."
Rosneft and Gazprom are at the head of the line in front of VEB's loan window.
But close behind them are all of the oligarchs, representing all of Russia's
mineable resources, power sources, industrial assets, and consumer demand.
Oleg Deripaska, who controls the state aluminum champion, is looking for $10
billion, divided between United Company Rusal, and his holding Basic Element.
Vladimir Potanin, the controlling shareholder of Norilsk Nickel, Russia's
largest mining enterprise, argues that VEB should not lend Deripaska money he
borrowed to start a hostile takeover against Norilsk Nickel.
The application process for state funding obliges Medvedev and Putin to make a
choice between oligarchs and their competing demands. And this in turn triggers
the choice of whom they prefer.
Enterprises and assets which were once handed out by Yeltsin, in return for
little more than a bribe, are now passing back to the state, stripped of their
cash, heavily indebted, their shares or property mortgaged and potentially
forfeit to foreign lenders.
The last time such a momentous policy choice materialized in Russia was in
2003, when oil was less then $20 per barrel; the US was preparing to attack
Iraq and lower oil to $13 per barrel; and Khodorkovsky proposed selling Yukos
to a US oil company. For the five succeeding years, the oligarchs have largely
avoided positioning themselves under the chopper that decapitated Yukos and
Khdorkovsky. Now reason and cause may be different; but the stakes for Russia's
future are just as high, and the axe is still as sharp.
Read Putin's lips carefully. Last week, he said: "We should refinance only
those credits which were involved for realization of investment projects or
acquisitions of shares in Russia."
That means he intends to make a choice. Oligarchs with famously expensive
houses in London or the French Riviera, English football teams, steelmills in
the United States and aluminum smelters in Nigeria, need not apply.
Disinvestment in Russia, job cuts, transfer pricing of profit abroad - these
are criteria for passing over an applicant for bail-out finance from the state.
"The crisis has shown," said Sergei Chizhov, a former federal oil minister,
"that without the aid of the state, Russian companies realize that they cannot
survive. I do not exclude that Rusal can be nationalized."
The implication is that those of Russia's leading corporations left penniless
outside the VEB loan window, when it closes, face re-nationalization. For this
to happen requires another revolutionary shift of Russian political and
financial power. Don't mistake how stationary the VEB line looks to be, for how
rapidly this revolution is moving at this very moment.
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