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EXCLUSIVE-Russia's Lukoil studying sale of Swiss trader Litasco - sources
August 30, 2017 / 12:56 PM / 3 months ago

EXCLUSIVE-Russia's Lukoil studying sale of Swiss trader Litasco - sources

* U.S. sanctions complicate Russia-related deals, funding

* Sale would free up working capital for upstream - source

* Lukoil could follow with more divestment overseas

By Dmitry Zhdannikov and Alexander Ershov

LONDON/MOSCOW, Aug 30 (Reuters) - Russian oil major Lukoil is considering selling its Swiss unit Litasco because new U.S. sanctions on Russia will make it harder for the Geneva-based energy trader to raise new funds, industry sources said.

Litasco could be sold towards the end of this year, possibly as a first step towards divestment of other overseas assets by Lukoil to enable Russia’s second largest oil producer to focus on tapping fields in Siberia, a senior industry source said.

“One of the reasons behind the sale idea is sanctions. The sale will also help divert a big chunk of working capital from trading activities towards upstream projects in Russia,” the source told Reuters on condition of anonymity as he is not authorised to discuss the possible sale in public.

Lukoil controls refineries in Romania, Bulgaria, Italy and the Netherlands. It declined to comment.

The sources did not say how much Lukoil might raise by selling Litasco, one of the largest global energy traders. Most trading houses are not publicly listed and the book value of rivals range from $2 billion to $6 billion.

The sale of Litasco would provide more evidence of how the latest U.S. sanctions have complicated lending to Russian companies -- state and private -- and even hit overseas entities only indirectly connected with Russia.

Banking sources told Reuters last week that Italian bank Intesa Sanpaolo had encountered problems syndicating a loan to mining and commodities trading group Glencore and Qatar’s wealth fund to fund their purchase of a stake in the Russian oil major Rosneft because of the new U.S. sanctions.

The sanctions, signed into law by President Donald Trump on Aug. 2, were Washington’s strongest action against Moscow since 2014, when it first took steps to punish Russia over its annexation of Crimea from Ukraine and Russian support for separatists in east Ukraine.

Lukoil, which is a private company co-owned by its management without any ownership by the state, has been on the sanctions list since 2014 but it is not barred from selling assets.

MAJOR TRADING HOUSE

The new sanctions were in part a response to conclusions by U.S. intelligence agencies that Russia meddled in the 2016 U.S. presidential election. The sanctions dashed hopes of a rapprochement between Moscow and Washington.

Set up in 2000, Litasco has been one of the most successful traders of Russian oil in the past decade. It focuses on selling Lukoil’s crude and products worldwide, serving its refineries in Europe and adding value through trading.

Third-party contracts have increased substantially over the past few years as Litasco’s footprint expanded into the United States, Asia and Africa.

Litasco traded 3.2 million barrels per day of oil and products in 2016, its chief executive told Reuters this year, putting it on a par with rival trading houses such as Mercuria and Gunvor and behind only the world’s top three trading houses -- Vitol, Glencore and Trafigura.

“Gradually, Litasco will become an independent trading house like Vitol or Trafigura,” said a second industry source, confirming plans for the sale.

But oil trading -- where a standard-sized cargo with crude costs over $50 million -- is a capital-intensive business which requires trading houses to have tens of billions of dollars of credit lines readily available from dozens of global banks.

The sanctions have since 2014 complicated new capital-raising by Russian firms and the new U.S. measures have thrown lending patterns into disarray, with lawyers from big Western banks trying to establish what is still permitted under the latest restrictions. (Additional reporting by Olesya Astakhova,; Writing by Dmitry Zhdannikov, Editing by Timothy Heritage)

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