In a landmark deal, Russia’s VTB Group has agreed to sign a Memorandum of Understanding (MOU) with China National Petroleum Corporation (CNPC), China’s largest oil and gas producer and supplier.
The wide-ranging, open-ended agreement will formalise and extend cooperation between the bank and the Chinese state-owned enterprise as the two countries forge stronger trade and investment links.
“Under the MOU, all of CNPC’s oil and gas business in Russia will be facilitated exclusively by VTB. Activities will include corporate and investment banking, private equity, foreign exchange, leasing and guarantees, but there are unlikely to be major mergers or acquisitions,” said Riccardo Orcel, deputy CEO of VTB Group at the VTB Capital “Russia Calling” Investment Forum in Moscow on 1 October.
VTB, which is majority-owned by the Russian government, will offer its products and services to support CNPC’s activities in Kazakhstan and Azerbaijan as well as in Russia, and potentially outside the CIS too.
CNPC, one of the biggest investors in Russia, already has supply arrangements and development ventures with Rosneft, the country’s largest oil producer. VTB has often played a financing, broking or advisory role in those arrangements.
In June 2012, VTB signed a strategic partnership agreement with Rosneft which covered various investment banking services and included a five-year Rub100 billion credit line to finance regional projects.
A year later, Rosneft signed a long-term contract worth approximately $270 billion with CNPC to supply it crude oil for the next 25 years. The two companies also plan to jointly build the Sino-Russian Tianjin refinery.
Separately, VTB said it was acting a passport bank and agent for a $2 billion loan between Rosneft and China Development Bank, secured by a 2009 crude oil supply contract between Rosneft and CNPC. Rosneft supplies about 300,000 barrels of oil a day to China and will supply an additional 300,000 barrels a day from 2015.
CNPC, which is active in more than 60 countries and has a market capitalization of more than $200 billion, also provides exploration and development and related services to other Russian companies such as Lukoil, Novatek, Transneft and Gazprom – with whom it is expected to sign a major deal soon.
“CNPC has a track record for signing some of the largest commercial agreements in the country and we intend to facilitate and support the development of these investments. The MOU demonstrates a high degree of mutual trust, and will strengthen the economic relationship between China and Russia,” said Orcel. China is already Russia’s largest foreign direct investment partner.
Asia Pacific and especially China, is strategically important for VTB Capital’s business development, said Damian Chunilal, CEO Asia VTB Capital, the investment banking arm of the Group. It has offices in Hong Kong and Singapore, and is present in Shanghai, Delhi and Vietnam.
“I am confident that through this MOU, VTB Group will build a long-term and mutually beneficial partnership across the range of commercial and investment banking services, allowing us to strengthen business and trade relations between the two countries,” he said.