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By John Helmer, Moscow

If you are looking for Gennady Timchenko (second from right), the dominant Russian in the partnership which created the oil trader Gunvor, you won’t find him in the market prospectus Gunvor has just released to the market. That’s because the document, dated May 10, 2013, spells his name Guennadi Timtchenko.

The prospectus for $500 million in bonds is the first to be issued to the market by the hitherto secretive Timchenko and his partner, Torbjorn Tornqvist. Prepared by Credit Suisse, Goldman Sachs, ING and Societe Generale, the document says Timchenko and Tornqvist own the group 50/50. But the prospectus isn’t a prospectus in Switzerland because in that country, Gunvor can “not claim to comply with the disclosure standards of the Swiss Federal Code of Obligations and the listing rules of the SIX Swiss Exchange Ltd. and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange Ltd.” The prospectus can be read in full here.

According to press reports, Gunvor’s debt sale was initially targeted to raise $300 million. The prospectus acknowledges that the arranging banks may rig the sale “with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail.” Expert opinion in the London market differs about the genuine demand. The Financial Times claims, without identifying a source, that the issue was “significantly oversubscribed” and that $500 million in debt notes were sold, instead of $300 million. In January, Bloomberg was told by Tornqvist that the bond sale target was $500 million. “The market is good for this right now,” he was reported as saying. “We are actually planning to construct a couple of refineries around the world and we are looking for investment opportunities outside Russia as well.” By April, however, weakening market demand had cut the target to $300 million, as Reuters was told by Gunvor’s chief operating officer, Jerome Schurink.

Singapore rules set the veracity standard which applies. According to Gunvor, “we have received approval in-principle [sic] for the listing and quotation of the Notes on the Official List of the Singapore Exchange Securities Trading Limited (the ‘‘SGX-ST’’). The SGX-ST assumes no responsibility for the correctness of any of the statements made or opinions expressed or reports contained herein.”

The Singapore Stock Exchange’s rule 13.8. dealing with market manipulation says that “a trading member or a trading representative must not engage in, or knowingly act with any other person in, any act or practice that will or is likely to:— (1) create a false or misleading appearance of active trading in any securities or Futures Contracts; or (2) lead to a false market in respect of any securities or Futures Contracts. For avoidance of doubt, a false market includes a market in which:— (a) information is false, exaggerated or tendentious; (b) contrived factors are in evidence, such as buyers and sellers acting in collaboration to bring about artificial market prices; or (c) manipulative or fictitious orders, transactions or other devices have been employed.”

One disclosure conspicuous by its absence in Gunvor’s prospectus relates to its business in the central African Republic of Congo-Brazzaville. There, between 2010 and 2012, Gunvor secured eighteen cargoes for trade of 920,000 tonnes of Congolese crude, worth $115 million each, making more than $2 billion altogether. According to sources reported in Geneva, the terms included a discount of $4 per barrel, which, allegedly, turned into a benefit of about $72 million. Swiss government investigators have been examining the evidence of the trade and of allegations of bribes, kickbacks, and money laundering. The wrongdoing, according to press reports of the investigation, involved the President of Congo, Denis Sassou Nguesso, who met with Timchenko and Tornqvist in 2009. According to Gunvor, which confirmed the presidential meeting to the Swiss newspaper Le Temps, such meetings are standard practice during the negotiation of big contracts between an oil trading company and a government.

Between 2010 and 2012 Gunvor says its revenues amounted to $155.9 billion, so the Congolese trades came to just 1.3%. Gunvor has issued a statement on the Swiss investigation, saying: “Gunvor itself is not the object of the current investigation. Gunvor is fully cooperating with Swiss authorities on the investigation, and Gunvor is also conducting a thorough internal investigation into these allegations.” Culpability, if the Swiss authorities were to find any, Gunvor claimed, would belong to a “a former employee in the Republic of Congo (Congo-Brazzaville)… The employee, who served as a business developer in Central Africa, is no longer employed by Gunvor.”

The Congolese president has subsequently visited President Vladimir Putin in Moscow, and the two governments are negotiating arms deals, as well as a pipeline to be built across Congo by Stroitransgas, a company owned by Timchenko. For more on that story, read this.

According to this month’s Gunvor prospectus, there is nothing to disclose or report from the Swiss investigation because “there are no litigation or legal, administrative or arbitration proceedings against or affecting the Issuer or the Group, current or pending, or, to the best of the knowledge and belief of the Issuer, threatened before any court, tribunal, arbitration panel or agency which might be material in the context of the issue of the Notes.” A similar disclaimer appears relating to Clearlake Shipping Pte. Ltd. and Gunvor Singapore Pte. Ltd, two new Singapore trading subsidiaries; Gunvor International, a Netherlands trading unit; Gunvor SA, a Swiss trading subsidiary; Waterway Petroleum Ltd of the Bahamas; and Sandmark Ltd., a Cyprus subsidiary chartered to “carry out any other business or activity which the directors consider profitable.”

On the other hand, in a one-line mention in the auditor notes to the annual financial statement, it is revealed that “Gunvor Petroleum Congo SAU of Congo”, a 100% owned subsidiary, is “in liquidation” (page F-146).

The prospectus also reports that earlier this year Gunvor bought a 9.9% equity stake in a Swedish company whose Congolese crude oil production it trades. The prospectus reports that “in early 2013, Gunvor acquired a 9.9 per cent. [stake] in PA Resources AB (‘‘PA Resources’’). PA Resources is an international oil and gas group involved in the exploration and development of oil and gas assets and the production of oil and gas. Its oil production facilities are located in West and North Africa. The holding company of the group, PA Resources, is located in Stockholm, Sweden, and its shares are listed on NASDAQ OMX in Stockholm. Gunvor’s interest in PA Resources stems from its existing contractual relationship with it, whereby Gunvor off-takes all of PA Resources’ crude oil production of Didon and Zarzaitine grades in Tunisia, Azurite grade in Congo and Aseng grade in Equatorial Guinea, totaling approximately 5,000 barrels per day.”

Reports from PA Resources indicate that Gunvor is now the largest shareholder in the company, and that the current oil production rate is 6,600 barrels per day. Of that, 4,700 bd come from Azurite and Aseng, counted together. Exactly how much Congo crude PA Resources produces and Gunvor trades is not clear. PA Resources documents claim the Congolese well flow is variable and unstable. It is almost certainly a small fraction of the Congolese oil trade which has been under investigation in Geneva.

As for Gunvor’s global business, this appears to be looking mostly up, at least on the earnings line, as the trade moves away from crude oil and refined petroleum, towards coal, gas and carbon emissions. For the first quarter of this year, Gunvor says, “trading volumes in the first quarter of 2013, which amounted to 33 million metric tonnes of oil equivalent, increased by four per cent. as compared to the first quarter of 2012. Trading volumes for crude oil and refined petroleum products (including volumes from the Antwerp Refinery and the Ingolstadt Refinery) remained flat, while trading volumes for coal, natural gas and carbon emissions increased. Based on currently available management information, revenue is expected to be between US$22 billion and US$23 billion in the first quarter of 2013, a decrease of approximately 12 per cent. as compared to the first quarter of 2012. Profit before income tax for the first quarter of 2013 is expected to be approximately US$110 million, representing a 9 per cent. increase compared to the first quarter of 2012. The decrease in revenue and increases in volumes and profit before income tax reflect a change in the mix of commodities traded.”

The best test of Gunvor’s claim to be diversifying is the tabulation of its top-10 clients:


Visible in this table is Gunvor’s loss of crude oil allocations from Rosneft and other Russian producers, which drop from 30.8% of the top-10 allocation in 2010 to 21.1% last year; these include IPP. Gunvor explains that because “competition in the Russian crude oil market has increased, Gunvor has significantly reduced its purchases of Russian crude oil and placed greater emphasis on increasing the share of other, higher margin commodities in the Group’s trading portfolio, with a particular focus on refined petroleum products.”

As for meeting President Putin’s policy to reduce or eliminate the “offshorization” of major Russian companies, Gunvor reports that in addition to the holding parent, registered in Cyprus, there are forty “principal subsidiaries”. Of those just three are registered in Russia – Rosneftebunker, which supplies fuel for ships at Ust-Luga; Nevskaya Pipe Company, which connects the Baltic Pipeline System from oilfields in the hinterland to the Ust-Luga tanker terminal; and Gunvor OOO, reported as in the business of “services”. Cyprus dominates the registrations of the majority of other “principal” subsidiaries, followed by Switzerland.

As for companies controlled by Timchenko, with which Gunvor buys and sells things of value, these are not named. But in a section of auditor’s notes dealing with related-party transactions, it is reported that in 2011 the Gunvor group sold $10,348 worth of goods and services, and bought $20.5 million worth of the same from “entities under common control”. The transactions are reported to have been “on normal commercial terms and conditions”.

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