Russian energy giant, Rosneft, may clinch BP deal, but could face further growth blocks.
The Russian state-controlled oil producer may have sealed the deal on its target purchase of TNK-BP, but it could be prevented from further increasing its position as the third largest crude oil producer. Russia’s anti-monopoly regulator has warned that a $55 billion deal to buy rival producer TNK-BP may be Rosneft’s last big acquisition.
As the deal falls in the permissible range of 35-50% of market share, Russian Economy Minister, Andrei Belousov, has expressed no anti-monopoly concerns. The deal is subject to government approvals, expected in the first half of next year, but authorities warned that future deals would face closer scrutiny.
The cost to Rosneft in taking BP's 50% share inthe troubled conglomerate will be about $45 billion if it pays cash to BP's partners. Rosneft has secured $15 billion in financing from Western banks, although it is likely to borrow more, putting it on credit watch with ratings agencies while they wait for final financing arrangements.
BP will get $17 billion in cash for its half, plus 12.84% of Rosneft in stock, with BP using some of the cash to increase its stake to just under 20% in Rosneft itself. The rest of the buyout terms will be hammered out by BP during a 90 day exclusive negotiation period.
Through this takeover, Rosneft will be acquiring TNK-BP’s extensive retail network & local market insights as well as distribution of Valvoline, a leading lubricant brand for the passenger car market in Russia. It will also acquire 50% of Russian oil & gas company Slavneft.
Criticism of the deal has included the reduction of competition and breeding of inefficiency in the sector. However, Rosneft’s Chief Executive Igor Sechin has argued that the deal will reduce capital and operating expenditure by using TNK-BP infrastructure to deliver crude, particularly to China. The deal is also likely to come as a significant relief to BP which has had a fractious relationship with the other partners in the venture.