Rosneft’s one fifth has gone to Singapore. A comment for Kommersant by Mikhail Ilin partner at S&K Vertical

16 january 2017 2017-01-16

Rosneft reported that the 19.5 per cent stake that was sold in December 2016 in the course of privatization to Qatar sovereign wealth fund QIA and a swiss trader, has been recently transferred to QHG Shares Pte Ltd., their joint venture company in Singapore. Meanwhile, they have also entered into a major oil trading contract with the Russian oil company. Lawyers think that the Singapore jurisdiction was chosen first and foremost based on the advantages of the tax regime.

QHG Shares Pte Ltd (jointly owned by QIA of Qatar and Glencore), a company registered in Singapore, has received a right to manage 19.5 per cent stake in Rosneft. By the way, Glencore Singapore Pte Ltd., which is Glencore’s Singapore subsidiary, is its neighbor in Millenia Tower. Yesterday Rosneft also reported on a major deal on oil delivery with QHG Trading, another joint venture of the two investors. The contract has taken effect since 1 January 2017 and will be in force for 5 years, with the oil volumes being between 4,5 million and 11 million tons a year in the seller’s option. Rosneft’s Board of Directors, as it turned out, approved this deal as early as on 7 December, on the day when Igor Sechin announced the privatization of the company at the meeting with President Vladimir Putin.

The oil deal was an addition to the purchase by QIA and Glencore of the stake in Rosneft for 692 billion Rubles (10.2 billion Euros). According to official information, Glencore and QIA have invested altogether 2.8 billion Euros, while the remaining amount has been provided by Intesa Bank of Italy and a number of Russian banks. On the date of announcement the deal was still in process, but on 3 January Glencore reported that they have closed the deal. Kommersant’s sources in the industry note that the new investors in Rosneft have not only attained favorable conditions for financing the deal, but also secured some of their own terms, such as the increase of minimal dividends from 25 to 35 per cent of the net profits (IFRS) and tax benefits for Samotlor oil field (though there is no final decision on the latter).

Mikhail Ilin, partner at S&K Vertical Law Firm, says that such deals always require preliminary audit and then investors take their decisions. "This is the issue of the movement of profits of the final destination for financial returns. It appears that the audit of this specific transaction showed that for an investment of the given volume the most peaceful haven, i.e. the country with the most favorable tax regime, would be Singapore", - Mr. Ilin said. According to him, the country is usually selected based on the tax benefits related to the distribution of profits, dividends and loans between the investor and its subsidiary, which is in this case a Russian company.

Dmitry Kozlov, Anna Zanina

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