The overnight 8.8% drop in the dollar exchange rate of the renminbi Dec.6-7 was not a declaration of war against the US but an example of fat finger currency mistakes. During the night when currency markets are closed and there is not much liquidity things can go wrong, as also happened with sterling in September.
I wrote about the renminbi currency movement yesterday. Despite rumors that Beijing engineered the drop it did not. In fact it is trying to maintain China’s currency against risks of higher interest rates and illegal capital flight outflows by corporations and fat cats using foreign investment, Hong Kong insurance, real estate, and other ploys to get their money out of China. Both Donald Trump and Xi Jinping are trying to keep the renminbi up.
Today’s blog is being published by talkmarkets.com where presubscribers and newbies can get a taste of how we pick shares at www.global-investing.com. Their site will show what follows below for paid subscribers only as a promotion to help both our blog and their website in which I have invested.
BP plc  (BP) just lost the bidding against other major oil companies for Mexican deepwater concessions. It may have been hindered by memories of the 2010 Deepwater Horizon disaster in US Gulf waters. But in other parts of the globe, notably Russia, BP is sitting pretty. It offered a 4% royalty plus $606 mn while the only other qualified bidder, BHP Billiton of Australia, won the Trion field with a bid of $624 mn.
Making a big bet on both oil and Vladimir Putin’s Russia, Glencore and its shareholder, the Qatari sovereign wealth fund (QSWF), will jointly pay €10.2 bn ($11.3 bn) for a 19.5% stake in Rosneft PJSC, the Russian state-controlled oil company run by a Putin pal which produces more crude than Exxon Mobil. Here BP is in the catbird seat.
Glencore will initially commit €300 mn, and will pay up when it gains the bank finance it needs and gets the QSWF money, after which the deal closes. Glencore clearly is a weak buyer and is getting a cheap price for buying into the world’s largest oil company by production—and one priced at ~10% off from what smaller XOM commands. BP paid considerably less net for a marginally larger stake of 19.75% in Rosneft.
Igor Sechin, the Putin pal who is CEO at Rosneft, will book the cash for the cash-strapped company rather than the ostensible seller, the Russian Finance Ministry which currently owns the shares. That is not the only odd thing about this deal. Putin and Rosneft’s Sechin met late Wednesday to discuss the terms, and the Kremlin posted a transcript of their talk on its website disclosing them. This was something like a treaty between two powers—in this case Putin and Sechin.
This seeming transparency is a change from earlier dealings by Rosneft which were less than up front. The publication may mark a move by the Kremlin to better control CEO Sechin, who may be viewed as a threat to the government, which is struggling with low oil export receipts which hurt Russian living standards.
Russia has long tried to sell a further stake in Rosneft, beyond the 19.75% which BP snagged in 2010 when Russia was even needier than now. Putin, when he first took office, wanted to gain control of Russian oil and even attempted to buy out BP, which the country couldn’t afford to do at the time given the valuation BP worked out. The buy-up was not something Rosneft wanted; it was to give the Kremlin control of Russian oil. That is why Putin named his pal Sechin to head Rosneft. It since then held off on selling more of Rosneft before weak oil prices and a 2-year recession starving the federal budget forced the Kremlin’s hand.
