The Swedish billionaire who took control of the world’s fourth-largest oil trader last week buying out his Russian co-founder may soon look for a new partner. He says the ownership is too concentrated.
A move by Torbjorn Tornqvist to sell shares in Gunvor Group Ltd. -- linked by the U.S. government to Russian President Vladimir Putin -- would open doors to a new round of deal-making in global commodities trading.
Tornqvist bought out Gennady Timchenko a day before the Russian was hit by U.S. sanctions that alleged Gunvor had a connection to Putin. Stockholm-born Tornqvist will need to convince potential investors that Gunvor’s trading business isn’t dependent on Timchenko’s connections and won’t be affected by any future sanctions imposed by the U.S. and European Union in response to Russia’s annexing of Crimea.
“The company would benefit from a somewhat more diversified shareholding structure,” Tornqvist, 60, said in a telephone interview. His first priority is attending to client concerns because last week’s deal “is obviously something that needs to be digested” by them.
A sale would stir up the commodities-trading world for a second time in a month. Firms from Blackstone Group LP to Macquarie Group Ltd. tried and failed to buy JPMorgan Chase & Co.’s physical commodities trading business before a $3.5 billion sale was announced March 19 to Mercuria Energy Group Ltd.
Tornqvist, who now owns 87 percent of Gunvor’s equity and 100 percent of its voting shares, said on March 21 by phone that his top priority at the moment is ensuring Gunvor’s lenders and counterparties continue doing business with the Geneva-headquartered firm which he co-founded in 2000 with Timchenko.
Gunvor, which earned $301 million in net income in 2012 on revenue of $93 billion, has a few clear options, based on actions taken by other closely-held trading firms. Tornqvist could seek a strategic partner, or sell some of his shares either to employees or in an initial public offering.
Any of the options would represent a test of investor confidence in Gunvor. A sovereign wealth fund or private equity firm are the most probable candidates to buy a stake, said Craig Pirrong, a finance professor at the University of Houston.
“The sale of the stake to anyone would require the current uncertainty to settle down considerably,” Pirrong said.
Gunvor spokesman Seth Pietras said “it would be premature” to comment on how Tornqvist will reduce his stake.
While Gunvor has not been sanctioned, Tornqvist has held conference calls with banks, trading counterparties and bondholders after the U.S. Treasury Dept. said Russian President Putin has “investments in Gunvor” and may have access to its funds. Gunvor has denied the allegations.
Tornqvist called them “careless” and said banks including Goldman Sachs Group Inc. conducted strict due diligence on Cyprus-registered Gunvor related to its $500 million bond issue last year.
“They scrutinized this company inside out,” said Tornqvist, a pop art aficionado and yachtsman who owns the Artemis Racing team which competed for the 2013 America’s Cup.
Gunvor’s notes have recovered in recent days, after plunging on March 21 when the U.S. included Timchenko on a list of Russian officials and businessmen to be hit by sanctions. The yield on the company’s notes due in 2018 dropped 208 basis points to 8.12 percent from a March 21 record of 10.2 percent, as of 5:26 p.m. today in London, according to bid prices compiled by Bloomberg.
The former BP Plc executive amassed a fortune of about $3.8 billion largely through his ownership in Gunvor, according to data compiled by Bloomberg. The company’s revenue increased by 35 percent between 2010 and 2012 and profit rose by 15 percent. Gunvor grew out of a predecessor company located in Estonia and founded by Tornqvist and Timchenko in 1997 to trade Russian crude.
Tornqvist wouldn’t give details of his transaction with Timchenko other than to say the price was based on the “fair value of the company.” Timchenko’s 44 percent interest could be worth about $1.5 billion based on valuation estimates of trading firms with similar revenue and profit to Gunvor.
The world’s largest metals trader, Glencore Xstrata Plc, raised $10 billion in a 2011 initial public offering that made CEO Ivan Glasenberg and directors Daniel Mate, Telis Mistakidis, Tor Peterson and Alex Beard billionaires. Glencore acquired Xstrata in a $29 billion all-share takeover that closed in 2013.
Gunvor competitor Mercuria held advanced talks to sell a stake of between 10 percent and 20 percent to Chinese sovereign wealth fund State Development & Investment Corp., according to two people familiar with the matter. Those talks were put on hold when Mercuria won the right to exclusive negotiations to buy the JPMorgan business, one person said.
A group of Gunvor employees currently own 13 percent of their firm. Vitol Group, the world’s largest independent oil trader, is entirely owned by its executives with none owning more than 5 percent.
Trafigura, which says it’s the world’s second-largest metals trader and third-biggest independent oil trader, is also owned by a group of senior managers and employees. Co-founder Claude Dauphin, who was named executive chairman March 24 after stepping down as CEO due to a medical condition, is Trafigura’s largest shareholder. Dauphin owns a stake of “less than 20 percent” according to the prospectus. Trafigura has said it has no intention of selling shares in an initial public offering.
Mercuria’s two co-founders Marco Dunand and Daniel Jaeggi each own 15 percent of the Geneva-headquartered company, according to an executive who asked not to be named because the shareholdings are private. A group of early investors own another 20 percent of Mercuria’s equity and employees own the remaining 50 percent, the person said.
Gunvor also trades gas in its liquid and natural forms and recently hired traders to expand into metals and iron ore. The company owns the UST-Luga oil terminal in Russia, refineries in Germany and Belgium and a one-third interest in a coal mine in Montana.
“This is a company that increased its underlying profitability last year in spite of tough market conditions,” Tornqvist said, without providing details of Gunvor’s coming financial results for 2013.