By Jack Farchy, Ben Bartenstein and Archie Hunter
(Bloomberg) –A trading house that owns part of a stake in Russia’s flagship oil project said its share had been sold for next to nothing to a newly created company. And then it said it hadn’t.
The about-turn from Mercantile & Maritime, which last year partnered with top oil trader Vitol Group to buy 5% of Vostok Oil for 3.5 billion euros ($3.5 billion), is the latest example of the opacity surrounding the Russian energy sector since the invasion of Ukraine.
Ships carrying Russian oil have gone dark, Russian companies have stopped publishing large swathes of data, and major assets have been transferred to little-known buyers.
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In annual accounts filed in Singapore Sept. 29, Mercantile & Maritime Investments Pte said that as a result of European Union and Swiss sanctions against Russia, it “had to dispose of” its investment in Vostok Oil, a vast project spearheaded by state champion Rosneft PJSC that before the war was valued at $85 billion.
“Given the circumstances and development of the sanctions, the Group disposed of its investment in Amur to Fossil Trading, a company incorporated as a Free Zone Company within Dubai, on 22 July 2022 for CHF100,000,” it said.
Amur is the name for the joint venture, owned 75% by Vitol and 25% by Mercantile & Maritime, through which the two companies acquired the stake in Vostok last year.
Fossil Trading was registered in Dubai on April 26, according to registry documents seen by Bloomberg. It also owns Energopole SA, according to Energopole’s website, a Swiss trading unit that was set up by Rosneft following the imposition of US sanctions in 2020 on Rosneft Trading SA.
However, in response to questions from Bloomberg, Mercantile & Maritime said that its financial statements had contained “certain inaccurate statements.”
“For the avoidance of doubt, although Mercantile & Maritime Investments Pte Ltd remains an indirect minority shareholder in Vostok Oil LLC, we are in advanced discussions to divest our stake. While these discussions are ongoing, we are restrained from commenting further save to confirm that any such divestment would be to a third-party purchaser unaffiliated (directly or indirectly) to any existing stakeholder of Vostok,” it said.
“We have never discussed divesting our indirect minority stake in Vostok to an affiliate of Rosneft,” it added.
Following Bloomberg’s inquiry, Mercantile & Maritime filed a corrected set of financial statements on Oct. 26 in Singapore, which stated only that the company “is intending to dispose its equity stake in the Amur Group” to “a third party.” In its notice of error on the Singaporean business register, it described the type of error as: “Clerical / typographical errors or other errors.”
Also missing from the corrected filing was a passage that described profits from “additional trading activities” connected to the Amur investment, which the original filing said were “sufficient to off-set the loss on disposal of the investment.”
A spokesperson for Vitol declined to comment. The trading house said in early July that it had “agreed to sell its shares” in Vostok and was “in the process of completing the legal formalities necessary to complete this transaction,” but hasn’t provided an update since.
Rival trader Trafigura Group said in July that it had sold its 10% stake in Vostok to a newly created Hong Kong-registered trading company for an undisclosed sum. A person familiar with the transaction said at the time that the company’s owners weren’t Russian.
Commodity traders have enjoyed their biggest profits on record this year, as the invasion of Ukraine and subsequent sanctions against Russia created upheaval and wild price swings.
And while their investments in Russia have become a headache for the traders, they have also in some cases delivered significant profits.
In its financial statements, Mercantile & Maritime — which is owned by veteran trader Murtaza Lakhani — warned that the impact of western sanctions against Russia “may affect the Group’s ability to continue to trade.” However, it said that it had refocused on other markets since the sanctions and that, since it had no major external liabilities, the situation “does not impact upon the ability of the Group to continue to operate as a going concern in the foreseeable future.”
Still, the September Mercantile & Maritime filing also highlighted the spectacular profits the Russian oil trade has delivered. While the company said it would lose almost all of the $295 million it invested to buy its share of the joint venture with Vitol, it also highlighted that it had received “economic benefits from additional trading activities” from “the arrangement in connection with the Amur investment” totaling $295 million in gross profit in ten months. Of that, it made $65 million between October and December 2021 and $230 million between January and July 2022.
“Accordingly, management represented that the total gross profit generated from these additional trading activities is sufficient to off-set the loss on disposal of the investment,” the filing said.
That passage was no longer in the amended set of accounts filed in October.
Vitol, which invested $886 million for its 75% share of the joint venture, hasn’t said how much profit it has generated from any associated trading contracts. In its latest annual report, it said that the Amur joint venture recorded a $506 million loss in 2021, which a person familiar with the matter said was the result of an impairment. Vitol made close to $4.5 billion in the first half of 2022, Reuters reported, smashing its profit records.
© 2022 Bloomberg L.P.
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