Ban on the tank: Lukoil was left without a buyer

International trader Gunvor has withdrawn an offer to purchase Lukoil's foreign assets after the US Treasury denied the company a business license until the conflict in Ukraine is over. Amid reports of a failed deal, shares of the Russian oil company declined by more than 4%, but later the securities regained their positions a little. According to analysts, Lukoil will now focus on selling assets piecemeal, and the cost of such transactions is likely to be low. At the same time, experts note that the refusal of Gunvor will allow to preserve some of the foreign assets located in friendly countries. How exactly the situation will affect capitalization and the market is described in the Izvestia article.

Why did Gunvor withdraw the offer

The Swiss company Gunvor, which had previously expressed interest in buying Lukoil's foreign assets, announced on the night of November 7 that it had withdrawn its offer. The international trader announced this after the US Treasury Department announced that it would not grant the company a business license until the conflict in Ukraine was over.

In turn, Gunvor stressed that "the statement of the US Treasury about Gunvor is fundamentally misinformed and false." The trader noted that he talks openly and transparently about his owners and business, "has been actively distancing himself from Russia for more than 10 years, stops trading in accordance with sanctions, sells off Russian assets and publicly condemns the conflict in Ukraine."

The international trading company was founded in the late 1990s by Swedish entrepreneur Thorbjorn Tornqvist and Russian businessman Gennady Timchenko. The latter sold his share to Tornqvist in 2014 due to the sanctions risks. Nevertheless, the company has always been regarded as the main trader in Russian oil trading and has been close to the largest domestic oil and gas organizations, including state-owned ones. Currently, Gunvor promotes itself not only as an oil trader, but also as a diversified holding company that owns oil terminals, pipelines, shipping, refining and coal assets.

Against the background of the news about the failed deal, the shares of the Russian oil company fell by more than 4% on the morning of November 7. However, in the second half of the day, the securities regained their positions a little and were trading at 5,306 rubles per share, declining by 2.73%.

Lukoil, in turn, has not made any official statements. Izvestia sent a question to the company about its further actions in relation to its foreign assets.

Is it possible to sell individual assets

After sanctions were imposed on Lukoil on October 21, the U.S. Treasury Department allowed operations with sanctioned companies until November 21. In turn, less than a week later, the Russian organization announced its intention to sell its foreign assets, and on October 30 it became known that Gunvor had made an offer to acquire 100% of LUKOIL International GmbH, a subsidiary that owns the foreign assets of the Lukoil group. The organization accepted it and pledged not to negotiate with other potential buyers. All that remained for the trader was to obtain permission from the Office of Foreign Assets Control of the US Treasury (OFAC) of the US Treasury Department to conclude a binding agreement.

As lawyers emphasized in a conversation with Izvestia, this is considered "a standard condition for such contracts." For example, when organizations left the Russian market, they prescribed similar conditions for obtaining permission from the Russian government commission.

The refusal of the US Treasury to grant Gunvor permission for the transaction does not mean that in the future a license cannot be granted to another participant, said Natalia Abtseshko, head of the international projects group at VEGAS LEX law firm. According to her, the buyer of Lukoil's foreign assets may be a company whose candidacy will be more acceptable to the American regulator, taking into account the political interests of the United States.

— As for the validity period of general licenses No. 126, 127 issued by OFAC, including for operations with shares of Lukoil and Rosneft, even taking into account the refusal of the Ministry of Finance to authorize the transaction, the possibility of extending these licenses cannot be completely ruled out if it meets the course acceptable to the US authorities, — she noted.

It is worth recalling that at the end of October, OFAC allowed transactions with Rosneft structures in Germany for six months.

In turn, the General Director of the Independent Analytical Agency of the Oil and Gas Sector (LLC "NAANS-Media") Tamara Safonova notes that the powers of the Office of Foreign Assets Control (OFAC) include, among other things, freezing the assets of sanctioned individuals and organizations under U.S. jurisdiction, as well as prohibiting American citizens and companies from doing business with them.

— There is also a question about the legality of blocking transactions for the sale of assets on the international market outside the United States. Lukoil owns enterprises not only in unfriendly, but also in friendly jurisdictions. In fact, a comprehensive deal was needed in order to ensure the sale of assets in the EU and the United States," the expert explained.

In her opinion, in the current situation, Lukoil, if necessary, will be able to sell individual assets located in friendly countries without involving intermediaries.

Izvestia sent a request to the US Treasury.

What is the future fate of Lukoil's foreign assets

Valery Andrianov, an associate professor at the Financial University under the Government of the Russian Federation, believes that after the failure of the Gunvor deal, the sale of foreign assets in countries where there is the greatest risk of increased sanctions pressure is still relevant for Lukoil.

— First of all, we are talking about refineries in Bulgaria, Romania, the Netherlands, as well as a network of filling stations in Finland. These assets are already facing difficulties in purchasing raw materials or selling their products. A separate buyer will be sought for each facility, taking into account local interests and regulations. For example, earlier, companies from Azerbaijan, Kazakhstan, as well as Eastern and Central European countries were considered among the applicants for the purchase of the Burgas refinery, the expert believes.

Dmitry Kasatkin, Managing Partner of Kasatkin Consulting, agrees with this opinion.

— Most likely, we will see the sale of assets not in one lot, but in parts. The deal will be delayed, and the price is likely to be low," the source told Izvestia.

Earlier, he estimated the company's foreign assets at $10 billion and did not rule out that the discount on sales to companies from unfriendly countries could be up to 70%.

At the same time, according to Valery Andrianov, Lukoil has no urgent need to get rid of shares in foreign projects located in friendly or neutral jurisdictions, especially where the company is not an operator and does not control the package. In particular, we are talking about mining assets in Kazakhstan, Uzbekistan and Azerbaijan.

— I think that the sanctions pressure will not be felt so strongly there and will not lead to disruption of these projects. In other words, the failure of the deal with Gunvor, in my opinion, will allow Lukoil to retain some of its foreign assets," Dmitry Kasatkin believes.

At the same time, experts are skeptical about the issue of confiscation of these assets.

— At the moment, it is difficult to say that there are full—fledged legal prerequisites and tools for such assets to be confiscated, - says Maria Kruk, head of the St. Petersburg branch of the Sokolov, Trusov and Partners Moscow Law Office.

According to Natalia Abtseshko, asset confiscation is not a standard measure of US sanctions, even against sanctioned individuals. As a rule, we are talking about the freezing or blocking of assets, except in cases of prosecution for violations of the law.

"The possibility of the actual confiscation of certain assets of Russian citizens is being discussed in the EU countries, but the prospects remain uncertain due to difficulties with the legal application of such an instrument," she said.

Maria Kruk believes that Lukoil's foreign assets will be frozen until they are sold to a new owner. If a suitable buyer cannot be found, they can be used as a potential exchange item for blocked funds between Russia, the United States and Europe, the expert concludes.