Tensions over Ukraine end Morgan Stanley’s bid to sell oil trading unit to Rosneft

MORGAN Stanley has scotched a deal to sell an oil-trading and storage business to Russia’s Rosneft.

Morgan Stanley and Rosneft terminated their deal for the latter to buy the US bank’s oil-trading and storage division.

MORGAN Stanley has scotched a deal to sell an oil-trading and storage business to Russia’s Rosneft, leaving the Wall Street firm on the lookout for a new buyer of the division.

Morgan Stanley and Rosneft, Russia’s largest oil company, revealed that the two sides had terminated their contract after they failed to win US clearance on the deal amid tensions over Russia’s intervention in Ukraine.

The agreement would not proceed “due to an objective impossibility to complete the deal that has arisen as a result of regulatory clearances being refused,” the companies said in a statement.

A Morgan Stanley spokesman said the firm would “now consider a variety of options for the unit’.’

Macquarie Group, the Australian bank eager to build out its commodities-trading arm, is among the firms that has expressed interest in the business. Rosneft had agreed to buy the assets for several hundred million dollars, The Wall Street Journal reported earlier this year.

Several analysts said they did not expect Morgan Stanley to find a new buyer quickly, in part because the fall in oil prices could make the business less attractive in the short term.

Morgan Stanley had sought a buyer for the business amid pressure from US regulators to shed physical commodities assets that might pose risks to Wall Street firms and the markets. Other banks, including JPMorgan Chase and Goldman Sachs, had also moved to shed certain corners of their commodities-trading arms.

State-controlled Rosneft emerged as a willing bidder and reached an agreement with Morgan Stanley in December last year. The two companies then pursued the necessary regulatory approvals, including one from a confidential US committee that vets security risks. They told investors they expected to complete the transaction in the second half of 2014.

Meanwhile, the situation in Ukraine deteriorated. In April, US officials added Rosneft president Igor Sechin to a sanctions list that restricts travel and freezes assets. And as the US escalated its response to Russia’s push in Ukraine, Morgan Stanley executives turned more pessimistic that their agreement would win regulatory approval.

Those relations frayed further in August, when Russia was accused of providing aid and artillery to Ukrainian rebels.

The standoff has prodded other would-be buyers of Morgan Stanley’s trading and storage assets to ask about the business’s availability. In October, Morgan Stanley acknowledged publicly that the deal with Rosneft might never close. At that point, the two companies still had a contract, and Rosneft indicated it would not agree to break the deal before it expired in late December. That agreement meant Morgan Stanley could not begin talks with other potential buyers.

“Having invested substantial efforts in the deal, the parties regret that it could not be completed,” the companies said yesterday.

Rosneft has been hit by the Western sanctions and is facing restrictions to acquire certain technologies and raise capital in the West.

Morgan Stanley has said it would continue to operate the business, which includes an inventory of oil and a 49 per cent stake in tanker operator Heidmar.