in what direction does money flow as a result of this?
I'm kind of an idiot when it comes to finance, and to my uninformed eyes, this looks to me like a $25bln gain for Rosneft. Is that the case?
I'm kind of an idiot when it comes to finance, and to my uninformed eyes, this looks to me like a $25bln gain for Rosneft. Is that the case?
Edit: looking at the BP disclosure, they've decided to make the accounting changes that show they're going to sell the stake, they'll likely be looking for a smart way to offload the shares, probably to some large buyer (not just pressing sell on some brokerage account).
Edit 2: the $25B figure isn't really that accurate. Before this all kicked off, Rosneft had a market cap of around $70B,and BP held about 20%, or $14B. The article sums BP's carrying value for the company ($14B, coincidentally I think), and an accumulated foreign exchange loss of $11B, which had already been charged to equity. The current market cap of Rosneft is about $30B,so the actual hit to BP sharebolders will be something like $8B if they could sell at current prices.
Depending on what goes on here market wise before they can exit their ownership stake (if they haven’t already!) is what will decide how big a loss this is.
I think BP is a UK company and I'm not that familiar with the specifics of their accounting system. In the disclosure they say they considered that they had "significant influence" which is an IFRS accounting term. That would mean (as simply as I can explain it) that the initial purchase is recorded at cost with their share of Rosnefts profits and dividends recorded against that holding (along with a large bundle of other accounting details).
No, they were treated using the equity method:
Not quite an SEC rule, just self interest.
You want to get the best price for your stake and your options are to liquidate over the course of a few days in the open market (in which case word gets out) or private placement (usually the best option).
My guess is that this will be a highly negative EV trade for BP because: 1) they're unloading a huge stake which will result in a depressed share price due to supply/demand imbalance AND 2) share price is probably already undervalued due to the fearful climate.
Edit: note that I have no idea of the value myself. I'm just saying that if you were to accept BP's view, then they're not necessarily giving Russia a gift of any kind.
1. Their current production capacity in Russia will decline, since they won’t be able to receive new equipment and spare parts.
2. Their exports capacity may be reduced if more sanctions will come.
3. Their cashflow will be heavily impacted by sanctions. They may not be able to receive money or spend them on domestic market (eg pay salaries).
4. Their foreign investments may be frozen or they may be forced to sell.
It is heart-breaking to hear that we exclude energy from the embargo fighting to keep the gas prices low at all costs. We should pay $10 per gallon at the pump. And work at curbing our gas consumption.
Putin's counter-sanctions have created an environment where the PR benefit of publicly rejecting their Russian assets is worth more than the value of the assets themselves.
Weird world we live in.
So now Rosneft gets to keep more money? They did a stock buyback for free? That'll learn'em!
Either way, at minimum it's a gift of not crashing the price.
I'm by no means knowledgeable about this stuff, so please correct me if I'm wrong.
Realistically, that isn’t happening anytime in the foreseeable future.
Even if BP considers the shares and the voting power completely and utterly worthless the other owners of Rosneft apparently don't and giving back the shares gives the other shareholders larger ownership of the company for free.
They just don’t want to be involved anymore.
Realistically if they keep their shares, they’ll get hounded by everyone to do said influencing or whatever, which would be really irritating for them I imagine. But maybe they will put them in a drawer somewhere in the basement and tell everyone to screw off. Who knows. They say they don’t know right now.
What the statement says is they're removing themselves from the board (so can't be considered to having any control over Rosneft), and readjusting the shares value.
To me this reads as they're going to be a passive investor in Rosneft (and possibly sell the shares as quickly as possible), not that they're gifting them to Putin.
Statement here: https://www.bp.com/en/global/corporate/news-and-insights/pre...
If they were still a passive investor, they would still get a slice of revenue. They're totally divesting.
If a sale is taking place, the question is: to whom and for how much (Rosneft shares have been under fire on Thursday and Friday, along with all the other Russian stocks)
It’s really odd this threads insistence that shares are going to be “given” back to the company as the story doesn’t say that and it’s not what it typically means to exit a position.
If BP is "abandoning their shares", what do you thing that they mean by "the fair value of bp’s Rosneft shareholding at 31 March 2022"?
"First, it is expected to give rise to a non-cash adjusting item charge at the time of the first quarter 2022 results, representing the difference between the fair value of bp’s Rosneft shareholding at 31 March 2022 and the carrying value of the asset. At the end of 2021 this carrying value stood at around $14 billion."
No way in hell they're just giving them back to Rosneft.
Usually, when a company owns AAPL shares, for example, they do not include in their revenue or net income their "share" of Apple's revenue or net income. They just consider the value of the shares and the dividends they get.
But when some conditions are met they do. From their annual report:
Significant judgement: investment in Rosneft
Judgement is required in assessing the level of control or influence over another entity in which the group holds an interest. For bp, the judgement that the group has significant influence over Rosneft Oil Company (Rosneft), a Russian oil and gas company is significant. As a consequence of this judgement, bp uses the equity method of accounting for its investment and bp's share of Rosneft's oil and natural gas reserves is included in the group's estimated net proved reserves of equity-accounted entities. If significant influence was not present, the investment would be accounted for as an investment in an equity instrument measured at fair value as described under 'Financial assets' below and no share of Rosneft's oil and natural gas reserves would be reported.
Significant influence is defined in IFRS as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. Significant influence is presumed when an entity owns 20% or more of the voting power of the investee. Significant influence is presumed not to be present when an entity owns less than 20% of the voting power of the investee.
bp owns 19.75% of the voting shares of Rosneft. Rosneft’s largest shareholder is Rosneftegaz JSC (Rosneftegaz), which is wholly owned by the Russian government. At 31 December 2020, Rosneftegaz held 40.4% (2019 50% plus one share) of the voting shares of Rosneft . IFRS identifies several indicators that may provide evidence of significant influence, including representation on the board of directors of the investee and participation in policy-making processes. bp’s group chief executive, Bernard Looney, was approved as a member of the board of directors of Rosneft in June 2020 as one of bp’s two nominated directors. bp’s other nominated director, Bob Dudley, has been a member of the Rosneft board since 2013. He is also chairman of the Rosneft board’s Strategic and Sustainable Development Committee. bp also holds the voting rights at general meetings of shareholders conferred by its 19.75% stake in Rosneft. Transactions by Rosneft in its own shares during the year have increased bp’s economic interest in Rosneft to 22.03% (2019 19.75%). bp's management considers, therefore, that the group has significant influence over Rosneft, as defined by IFRS.