Rosneft is a publicly traded company. When you "exit" a position, that usually means you sell the shares onto the market. Public shares are traded on a secondary market, so if they do that some other investors would be buying them. I haven't looked into this story that deeply, but I think it's unlikely that they would be striking a good deal with Rosneft to sell them directly back to the company. Rosneft may decide to buy the shares back from the market itself.

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.

So were does the loss come from exactly? Were the shares that BP held not marked to market already?

It's like a loss you would make if you bought a stock for $20 and sold it for $18. Someone else buys it for $18 and it might go up or down from there. Rosneft got their money back when they initially sold the stock to the market.

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).

> Were the shares that BP held not marked to market already?

No, they were treated using the equity method:

https://en.wikipedia.org/wiki/Equity_method

In accounting terms, if they already recognized the asset at x value, or paid x amount for it, any amount less than x is considered a loss.

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 there is an SEC rule that prevents large block trades from happening on the open market. Many of these are done behind the scenes or during aftermarket hours, but always have to be approved by the SEC.

BP is not a US company nor is Rosneft. There is no reason the sale has to happen on an SEC controlled market. SEC rules do not necessarily apply here.

>I think there is an SEC rule that prevents large block trades from happening on the open market

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).

It sounds like BP will be selling their stake to another party. So, BP will receive cash from the other party in exchange for shares in Rosneft. Whether the sale is a smart move for BP ultimately depends on two things: 1) the sale price 2) the expected future cash flows from their stake if they didn't sell.

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.

I believe so. Rosneft being state-own, this looks like a 25 billion gift to Russia. There must be something that I don't understand.

It would be such a gift at current share price. But Rosneft will probably become much cheaper.

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.

This might be what the current dictator in that country wants - reduce the dependency on the imported components. And increase the percentage of state ownership of the natural resources.

This is probably the last time Putin uses Russia's resources to blackmail the EU. That's why he attacked Ukraine: he knew the window of opportunity to transform it into a Russian vasal state like Belarus is closing fast, so he picked the last refuge of the incompetent: violence. The EU won't build any ICE vehicles running on oil derivates after 2030, China is already ahead of them in this sectorand Germany just changed course with its plans to use Russian gas as for decarbonization after the invasion of Ukraine. China is also going to pay a lot less than the EU for Russian gas and there only so much pipeline capacity to deliver it. Russia basically just became dependent on China economically, just like Kazahstan and Mongolia. They have just invested $11.6B in a pipeline that will basically sit unused and will waste the rest of their dwindling treasury reserves on the war effort.

It is a good time in the US to stop subsidizing car economy. And let the price of gas increase. At least to the same level as in Europe.

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.

I wish this was true, but if they wait a few more years and do it again but win in 1 or 2 days they could still get away with it. I don't see this as their last dangerous takeover, as long as Putin is around.

In accounting terms, you might consider the stake to have been bought for 25 billion at the time, but now it's being considered worthless (or maybe even a liability) by BP, so something of no (dollar) value is being given to Russia. The loss in value might be considered to have occurred as a result of recent events.

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.

It was worth $25 billion before the invasion happened. Then the invasion happened. Then their share was worth the same amount in Rubles, but the value of the Ruble cratered. So their share was worth $10 billion. Then the west began announcing sanctions. Then Putin announced he was going to nationalize (personalize?) foreign investments in Russian firms -- including BP's investment. So their $25 / $10 billion stake was worth zero. Literally zero. Not a fraction of $25 billion, but literally zero. Because their investment in Rosneft is now owned by Putin.

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.

BP still owns the shares, and on the future this could still give them a claim against Rosneft so this is not a gift to anyone.

how so?

Using laws. Russia has not germ entirely cut off from international trade, and the UK government will back up BPs interests. Nothings been gifted to anyone, the headline is highly misleading.

yeah, it isn't $25B anymore.

Of course, but it's not worth $0 either. And when the restrictions against Russia are lifted the value will be back up.

It’s worth as much a as anyone is willing to pay for it and currently there is no one bidding. The price ($0) reflects the risk of that being true for a long time.

Didn't they just said they couldn't sell it (who'd buy?) and they just taking it "off the books" and will just stop claiming the money from the dividends?

So now Rosneft gets to keep more money? They did a stock buyback for free? That'll learn'em!

Nowhere, they just abandoned the stake and gave the shares back to Rosneft. BP already paid somebody $25bn for the stake years ago and they are writing down the value of that stake to zero.

Didn't Rosneft then gain whatever those shares are worth now? I get that they lost a strategic partnership, but the immediate effect is a gain for Rosneft, no?

Yes, it’s basically a free buyback (reverse effect of stock split/dilution).

In theory perhaps but it's a pretty damning indictment of their near term prospects so I would be surprised if they gain anything when the dust settles.

In terms of market cap, sure. But isn't part of owning a significant chunk of a company some voting power too? If the end goal of sanctions is to influence behavior then isn't it weird to give up voting power in a business in the sanctioned country?

I'm by no means knowledgeable about this stuff, so please correct me if I'm wrong.

For that voting power to exist, you’d need to be able to exercise it and/or have someone in the appropriate jurisdiction with power who would back up your claim to do so.

Realistically, that isn’t happening anytime in the foreseeable future.

I still don't get how this is a logical path. If BP wanted to hurt Rosneft wouldn't keeping the shares but announcing that they saw them as worthless except as a tool to influence russia be more impactful? Or any other path that would indicate their lack of trust in the company but still retain a way to influence it if that door opened again?

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.

BP, per the article, has not decided what they will do exactly - “[…] without saying how it plans to extricate itself.”

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.

That seems really weird. why give them a free gift? I suspect there must be more to this.

The gift is worth nothing or actually worse, BP pulling out reduces the value of all of their other shares too.

Surely (if that's really the case) just selling on the market and crashing the price would've hurt them even more. I'd normally expect that'd also make BP at least a bit of money but I have no idea about the complex accounting and tax situation when doing it this way.

Either way, at minimum it's a gift of not crashing the price.

Wher did you read that? I don't see that anywhere in BP statement.

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...

"The change in accounting treatment also means that bp will no longer recognise a share in Rosneft’s net income, production and reserves"

If they were still a passive investor, they would still get a slice of revenue. They're totally divesting.

I don't think that you understand what "change in accounting treatment" means.

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.

Divesting usually means selling.

No way in hell they're just giving them back to Rosneft.

That’s not necessarily what that means - it means they’re not going to attempt to get (or claim on their books) anything from Rosneft. If, for example, they never expect to get paid any of those amounts (even if technically owed them), they would also do that.

that does not mean that they are selling their Rosneft shares to Rosneft

They're not selling their shares to anybody. They're abandoning them. Rosneft, for obvious reasons, owns all the shares that aren't owned by anybody else so Rosneft gets control the shares back.

there is simply no information available on what will happen to the shares, so your insistence is irritating. If the shares were dissolved, the other owners (such as the Russian government) would end up with a larger stake.

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)

And a big company dumping their sales on the market would add further downward pressure.

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.

You seem very confident for someone who doesn't understand what he's talking about.

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."