Gunvor Buys Back Bonds After Russia Deals Yield $1.7 Billion

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Gunvor Group Ltd. said it will use part of the $1.7 billion earned from selling assets in Russia to repurchase the commodity trader’s debut bond.

A “significant portion” of the sale proceeds, including from the Ust-Luga oil products terminal in the Gulf of Finland, was distributed to shareholders as an “extraordinary restricted payment,” Gunvor said Tuesday in a filing to the Singapore Stock Exchange.

Gunvor has been reorganizing since Gennady Timchenko sold his 44 percent stake to co-founder Torbjorn Tornqvist, the day before the Russian was sanctioned by the U.S. for his ties to Vladimir Putin. The sale of the Russian assets, which accounted for 24 percent of the Cyprus-based commodity trader’s 2014 pretax earnings, triggered an obligation to make an offer for the outstanding $500 million bond, Gunvor said.

The yield on the 2018 note fell 198 basis points to 8.15 percent after the offer was announced. Gunvor said it already holds $154 million of the bond sold in May 2013.

“We have good liquidity and cheaper forms of financing available so it made sense to do it now,” Seth Pietras, a spokesman for Gunvor in Geneva, said by phone.

The yield on the notes climbed to more than 10 percent on March 21, 2014, the day after sanctions were imposed on Timchenko, and peaked at more than 14 percent in December.

Seeking Assets

Gunvor, which has denied any links to Putin after getting its start trading Russian oil, followed rival Trafigura Beheer BV in selling bonds to fund purchases of physical assets. While it has sold most of its Russian assets, the trader is seeking acquisitions, including refineries and mines, in Europe, North America, Africa and Asia.

The company, which already owns two refineries in Europe, is “looking very actively on the investment side,” Chief Financial Officer Jacques Erni said in April. Chief Executive Officer Tornqvist, a Swedish national, now controls about 87 percent of Gunvor’s equity with the remainder held by a group of employees. Tornqvist has said he will seek partnerships or investors as Gunvor’s ownership is too concentrated.

The company, one of the world’s five-largest independent commodity traders, bought back $80 million of the bond in April.

Before the asset sales, Gunvor’s cash reserves rose by 56 percent to about $1.5 billion last year and operating profit jumped 20 percent to $432.4 million as volatility and a contango market structure boosted earnings from oil trading.