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Privatization of Rosneft: Easing Sanctions against Russia

Last week, head of Rosneft Igor Sechin, said at a meeting with Russian President Vladimir Putin that the sale of 19.5% of Rosneft shares sale to a consortium established by the Qatar Investment Authority the Swiss trader of Glencore for 10.5 billion euros has been completed. As a result, the capitalization of Rosneft for the first time exceeded four trillion rubles and the company's share value rose to its historical peak. According to Danila Bochkarev, a fellow with the Brussels-based EastWest Institute, this deal suggests that investors consider political risks low and possibly expect easing of sanctions against Russia.

"The decision was made from a business point of view. This means that buyers, primarily the Qatar Investment Authority, count on the fact that the Rosneft shares will climb," Bochkarev said in an interview with www.valdaiclub.com.

"Investors count not on losses but on the preservation of investments in the absence of opportunities for higher-yielding investments - namely, on profit and growth of the company's market capitalization. These actions confirm investors' confidence in the insignificance of political risks," he added.

Moreover, representatives of new the investors will enter the Rosneft board of directors, but will not get a right of veto over key decisions. This, according to Bochkarev, shows their confidence in the Rosneft capitalization and dividends growth. This deal will allow the Russian government to cover the federal budget deficit.

"Currently, the privatization of 19.5% of Rosneft shares plus the sale of the controlling stake in Bashneft allows the government finance 57-58% of the budget deficit by the end of November," Bochkarev added.

According to the Financial Times, the Rosneft privatization deal is a personal triumph of Russia's President Vladimir Putin because it went through despite Western sanctions, which were aimed at deterring foreign companies from participating in the purchase of shares of Russian companies.

"When you invest a lot of money, at least 2% of [the Qatar Investment Authority] assets, and perhaps even more, you have to calculate the political risks. This means that there is a very good chance that sanctions will be lifted or at least weakened," Bochkarev said.

According to Bochkarev, there will not be any new sanctions against Rosneft.

"There is a possibility that the sanctions will be weakened in summer of 2017. It is possible to talk about the possibility that the sanctions will be ended by the EU and, perhaps, the United States," Bochkarev said.

In addition to its economic significance, the deal has important political consequences. It means not just a de facto breakthrough of the sanctions blockade against Rosneft, but also a change of the balance of power in Syria.

"We know that Russia and Qatar supported different political forces in Syria. Now, apparently, Qatar does not intend to confront Russia openly, or is considering cutting support to anti-Assad forces. This is a positive moment, which means that the chances for a political solution of the Syrian crisis are increasing," Bochkarev added.

"This is not the first project of the Qatar Investment Authority in Russia. I do not think that the Fund would invest if the Qatar government intends to engage in serious conflicts with Moscow," Bochkarev concluded.

Budget revenues from the Rosneft privatization will amount 703 billion rubles, the Russian Finance Minister Anton Siluanov said in an interview to Russia 24 television channel. Total sales of the state assets amount a record sum of 1.1 trillion rubles.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.