Here's Where the Profits are in Glencore's Russian Connection

Here’s Where the Profits are in Glencore’s Russian Connection

by | published January 8th, 2020

Earlier this week, I went into the details of Glencore’s numerous connections with Russia.

The story continues today (if you’re just joining us here, start from the beginning of this story by clicking here).

Now, I last left you with a mysterious deal between Glencore and Qatar.

Public records in Singapore show that Russia’s second-largest bank, state-controlled Vneshtorgbank (VTB) – which also figured in the Mueller probe – loaned the Singapore vehicle QHG Shares the full €10.2 billion that it paid to the Russian state to buy the stake.

According to sources, VTB held the 19.5% position in Rosneft as collateral for the loan before sending it back to Rosneft’s state-owned parent company Rosneftegaz, which in turn relinquished it back to the Singapore vehicle when Intesa’s loan arrived.

And the entire adventure in smoke and mirrors had come as a complete surprise to BP, Rosneft’s largest outside owner.

The Connections Go Deeper

The prospect that Glencore has been acting as a conduit for private interests in Russia – allowing them to participate in the Rosneft privatization through the series of LLCs set up – has been advanced by several of my contacts.

And the suggestion from a Rosneft board member that company president Igor Sechin had orchestrated the sale without the knowledge or instruction of Putin strains credulity.

There is some anecdotal information emerging from the Paradise Papers of how the Rosneft acquisition took place, but, to date, I’ve been told that there is no further concrete information about the Cayman Islands vehicle fundamental to it all.

The consensus developing among forensic analysts and commentators assumes a position has been carved offshore for Russian individuals with the blessing (and probably participation) of the Kremlin at the highest levels.

That leads to the second Glencore Russian imbroglio currently underway.

This one involves the largest nickel holding in the world, and once again brings us back to Rusal president Deripaska.

A Long-Held Power Struggle Continues

After a five-year “cooling off” period, competition for a stake in Nornickel heated up again.

This power struggle is between two major Nornickel shareholders, Vladimir Potanin and Deripaska’s Rusal.

The contest has been simmering for the entire five years the parties have agreed to delay action. At issue is the fate of a stake owned by Roman Abramovich, another close pal of Putin. He owns London’s Premier League Chelsea Football Club, and was once listed as the wealthiest resident of both Russia and the UK.

Sources tell me that he was installed as a Nornickel minority shareholder in 2012 by the Kremlin as part of the deal to keep the peace between Potanin and Deripaska. By acquiring Abramovich’s stake, Potanin would have even more control over the company, something Deripaska has opposed.

The contest took on an added element in late February of last year with Deripaska’s Rusal announcing it would ask Nornickel shareholders for permission to authorize the board to take part in a potential shootout – i.e., an auction between Potanin and Rusal, essentially going back to the situation existing five years ago.

Enter Glencore.

This Is Where the Profits Lie

As a part of the Rusal ownership structure, it certainly has an interest. But it also has a vested position in seeing Potanin’s influence reduced.

Glencore has wanted to move into trading the nickel, cobalt, and other metals produced by Nornickel. However, Potanin has been selling product under long-term contracts and is known to object to Glencore becoming involved.

I now expect that Glencore will be orchestrating another round of offshore holdings to facilitate Rusal’s position in a shootout, should it take place. If that occurs, it will have to be with Putin’s blessing.

And that leads several in my network to conclude that “Putin and friends” will have offshore positions in this transaction as well.

There are ways regular investors could profit, too. For instance, Glencore is fast becoming the largest LNG trader in the world, which opens up intriguing opportunities in oil-LNG contract swaps.

But the easiest way doesn’t even involve Glencore, at least not directly. Rather, it’s a play on the upside Glencore’s games will bring to global crude transit.

Based in Hamilton, Bermuda, Frontline Ltd (FRO) has around 70 very large crude carriers (VLCCs), Suezmax, and LR2/Aframax tankers at work.

That puts Frontline among the top five largest oil tanker shipping companies in the world. And that means Frontline enjoys the spare capacity and geographic exposure needed to profit from the surge in crude transit.

This won’t stay secret for long: As of last week, FRO shares were up 3.3%. for the recent rolling week and an attractive 11.6% for the month.

In other words, we’re likely to see some true upsides in the near future after all is said and done.



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