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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

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?

selectodude 5y ago
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.
- SahAssar 5y ago
  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?
  - ComputerGuru 5y ago
    Yes, it’s basically a free buyback (reverse effect of stock split/dilution).
    - spaetzleesser 5y ago
      That seems really weird. why give them a free gift? I suspect there must be more to this.
      - gambiting 5y ago
        The gift is worth nothing or actually worse, BP pulling out reduces the value of all of their other shares too.
        Tenoke 5y ago
        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.
    - VBprogrammer 5y ago
      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.
      - SahAssar 5y ago
        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.
        lazide 5y ago
        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.
        SahAssar 5y ago
        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.
        lazide 5y ago
        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.
- senko 5y ago
  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/press-releases/bp-to-exit-rosneft-shareholding.html https://www.bp.com/en/global/corporate/news-and-insights/pre...
  - selectodude 5y ago
    "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.
    - mxschumacher 5y ago
      that does not mean that they are selling their Rosneft shares to Rosneft
      - selectodude 5y ago
        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.
        mxschumacher 5y ago
        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)
Jyaif 5y ago
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.
- rlpb 5y ago
  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.
- simonh 5y ago
  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.
  - kavalg 5y ago
    how so?
    - simonh 5y ago
      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.
- ivan_gammel 5y ago
  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.
FastMonkey 5y ago
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.
- lottin 5y ago
  So were does the loss come from exactly? Were the shares that BP held not marked to market already?
  - lazide 5y ago
    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.
  - FastMonkey 5y ago
    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).
MrPatan 5y ago
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!
fairity 5y ago
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.

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?

selectodude 5y ago

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.

SahAssar 5y ago
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?
- ComputerGuru 5y ago
  Yes, it’s basically a free buyback (reverse effect of stock split/dilution).
  - spaetzleesser 5y ago
    That seems really weird. why give them a free gift? I suspect there must be more to this.
    - gambiting 5y ago
      The gift is worth nothing or actually worse, BP pulling out reduces the value of all of their other shares too.
      - Tenoke 5y ago
        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.
  - VBprogrammer 5y ago
    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.
    - SahAssar 5y ago
      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.
      - lazide 5y ago
        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.
        SahAssar 5y ago
        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.
        lazide 5y ago
        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.
senko 5y ago
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/press-releases/bp-to-exit-rosneft-shareholding.html https://www.bp.com/en/global/corporate/news-and-insights/pre...
- selectodude 5y ago
  "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.
  - mxschumacher 5y ago
    that does not mean that they are selling their Rosneft shares to Rosneft
    - selectodude 5y ago
      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.
      - mxschumacher 5y ago
        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)

Jyaif 5y ago

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.

rlpb 5y ago
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.
simonh 5y ago
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.
- kavalg 5y ago
  how so?
  - simonh 5y ago
    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.
ivan_gammel 5y ago
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.

FastMonkey 5y ago

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.

lottin 5y ago
So were does the loss come from exactly? Were the shares that BP held not marked to market already?
- lazide 5y ago
  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.
- FastMonkey 5y ago
  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).

MrPatan 5y ago

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!

fairity 5y ago

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.