Trafigura CFO Says Company’s Risk Is Limited in Vostok Oil Investment

(Bloomberg) -- Trafigura Group’s risk is limited in its investment in Vostok Oil, its finance chief said in an interview that cast new light on the trader’s bet on Russia’s flagship Arctic oil project.

Trafigura bought a 10% stake in Vostok Oil, a vast project controlled by Rosneft PJSC, in December last year, but details of the deal have only gradually become public. The stake was valued at 7 billion euros (about $8.5 billion at the exchange rate of the time) in the deal, out of which Trafigura contributed 1.5 billion euros ($1.8 billion) of its own funds and the remainder was funded by debt.

In an interview with Bloomberg News on Wednesday, Trafigura Chief Financial Officer Christophe Salmon said for the first time that the debt financing for the deal was non-recourse to Trafigura, meaning that the lenders would have no claim on Trafigura in the event of default. He also revealed that the banks that backed the deal were Russian.

“We are an investor into an SPV (special purpose vehicle) where we put equity. This SPV has raised indebtedness with a consortium of Russian banks,” Salmon said. “This debt is non-recourse to Trafigura and, as a consequence, is not consolidated into our financials.”

Rosneft didn’t respond to a request for comment.

The investment, including the stake in Vostok as well as associated contractual agreements including supply contracts, was valued at $862 million at the end of September in Trafigura’s accounts published on Wednesday, down from $1.3 billion at the end of March. 

Salmon described this as “an accounting technicality.”

“We had a certain number of commercial contracts attached to this investment. When we value this overall package, it is not like normal industrial assets -- there is a model behind, and every time we value our model we take the most conservative view. That is why the value decreased over the course of the year.”

The investment in Vostok Oil was one of Trafigura’s largest-ever deals. It also represented the first outside backing for the vast Russian Arctic project that’s set to be one of the world’s major new sources of oil supply in the next decade -- based on the Trafigura transaction, the project would be worth about $85 billion. However, many of the key details of the deal and how it was funded have been kept private.

Bloomberg reported in January that Trafigura’s acquisition of the Vostok Oil stake had been funded by a 5.775 billion-euro loan from a consortium of banks led by Credit Bank of Moscow PJSC, citing corporate filings in Singapore. Salmon’s comment suggests that all the banks in the consortium were Russian. 

Bloomberg reported in the same article that the debt was non-recourse to Trafigura, citing a person familiar with the matter. 

Rosneft sued Bloomberg over that article, and a Russian court ordered Bloomberg to retract five parts of the article on its website. 

©2021 Bloomberg L.P.