The Rosneft prepayment Deal of the Year 2013

The $8.32 billion prepayment financing for Glencore and Vitol’s long-term crude oil purchases from Russia’s top crude oil producer Rosneft, signed in March last year, was not only a landmark transaction for the energy sector, it also set a new benchmark in terms of scale and structure.

 

In terms of scale, the deal marks the largest performance risk financing ever. And as the largest commodity financing deal of 2013, the transaction is a worthy winner of a TXF Perfect 10 Deal of the Year 2013 award.

 

The deal is structured through a special purpose vehicle (SPV) through which the prepayment is made and crude oil shipments and payments are transacted. The borrowers are officially Ros-GIP for the ~Glencore^ flows, and Ros-VIT for the ~Vitol^ flows. The offtake volumes are Glencore with 70% and Vitol with 30%, and this is reflected in the financing structure. The facility followed Rosneft’s $31 billion acquisition of TNK-BP earlier in 2013. And importantly, the prepayment structure allowed Rosneft to tap significant new sources of liquidity to top up its finance package for that TNK-BP acquisition.

 

Mandated lead arrangers on the prepayment transaction were: ~BAML^, ~BNP Paribas^, ~Credit Suisse^, ~HSBC^, ~ING^, ~Citi^, ~Deutsche Bank^, ~JP Morgan^, ~Morgan Stanley^, ~Santander^, ~SMBC^ and ~Société Générale^ CIB. A further 13 banks came into the deal in syndication. Deutsche Bank acted as coordinator, facility agent and security agent.

 

The deal was initially launched at $7.5 billion, and increased to $8.32 million in syndication. The success in syndication is down to the top-tier names of the corporates involved and the favourable pricing, which is understood to be in the region of 200 basis points over Libor. The average take for banks on the deal was $300 million. Citi has the largest portion with $500 million, marking its ambition to be a leading player in the commodity trade finance market. The deal has a tenor of five-years plus a two-year grace period.

 

In other remarkable ‘firsts’, the transaction was the first prepayment structure completed for Rosneft. But it is certainly not the last, as this template has now been used in subsequent crude oil offtake arrangements with other prominent trading companies, such as Trafigura.

A particularly attractive feature of the deal for Rosneft was keeping the deal off its balance sheet, which it was able to do through the prepayment structure, and by accounting the transaction as commercial rather than financial debt.

 

The facility is secured by the underlying long-term offtake contracts of 46.9 million tonnes (Glencore), and 20.1 million tonnes (Vitol) of ‘Rebco’ (Russian export blend crude oil).

 

Commenting on the agreements at the time, Igor Sechin, Rosneft president and chairman said: “A number of aspects constitute a landmark approach: on the one hand, we guarantee predictable supply volumes to our customers based on tender pricing, on the other – we receive prepayment that can be used for our strategic goals. I would like to note that the opportunity for other partners joining these contracts is open.”

 

From the bank arrangers’ side, Kris van Broekhoven, global head commodity trade finance at Citi, says: “The Rosneft prepayment is an example of a number of powerful ingredients coming together in one transaction. The involvement of three large corporate clients, and the context of a strategic acquisition to form the world’s largest oil producer, ensured that banks were committed. The performance risk structure, applied to a text book strategic producer with an established track record, enabled those banks to commit large tickets.”

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