BP shocked markets last week when it announced plans to offload its near 20% stake in Russian oil company, Rosneft, after coming under pressure to divest following Russia president Vladimir Putin’s attack on the Ukraine.
FE fundinfo Alpha Manager, Richard Buxton, said that BP probably wished that it had sold out of the Rosneft stake some time ago, since it contributed very little to the overall business “and it did dissuade some investors from holding the stock”.
Since Russia began its attack, many companies have come under pressure to sell-out of or cease trading with Russian businesses as a stance of unity with Ukraine.
The oil giant has held a 19.75% stake in the Russian, state-owned firm for nearly 30 years, a relationship which BP chair Helge Lund said had now “fundamentally changed” following the invasion and that because of the attack “the Rosneft holding is no longer aligned with BP’s business and strategy”.
Lund denounced Putin’s attack as “an act of aggression which is having tragic consequences across the region” with BP pulling its representatives from the Rosneft board.
BP’s announcement came on 27 February. Just two days prior Buxton was directly asked how likely it was that BP would sell out of Rosneft during his monthly update on the Jupiter UK Alpha Strategy. The fund has a 3% allocation to BP currently, just outside the top 10 holdings.
At the time Buxton said he did not expect the firm to sell out “because I think that they would probably struggle to find a buyer, and if you’re Rosneft why would you buy the stock back off them”.
Indeed, BP has not yet made it clear how it will be disposing of the stock, it could potentially be seized or sold. Buxton said there was even a chance of the Russian state buying it.
Either way, it is likely to come at a cost to BP, but Buxton said that this was not an issue.
“The cashflows contributed about 6% of BP’s total and hence it makes virtually no difference to their strategic targets and guidance for cash, capex, dividends or debt all largely reiterated.”
When asked about his view on BP following the announcement Buxton told Trustnet that there had been no change to his holding.
He said: “I did answer a question on my webcast about BP’s Rosneft stake saying I thought it unlikely they would sell it, but I also said it was a legacy asset of previous managements which formed no part of current management’s plans and they hardly ever mentioned it…and I suspected, frankly wished, they didn’t have it, since it does dissuade some investors from holding the stock.”
The manager added that many companies appear to have taken the same approach and were now selling out of their Russian exposure, making BP’s intentions to sell “look very early and decisive now”.
BP is not the only holding in the fund with exposure to Rosneft though. Commodity and mining company Glencore owns a 0.5% stake in the Russian business. It had previously owned a 25% share of Russneft, a smaller Russian oil producer, but sold out of the company at the start of this year, a plan which had been put in motion in December 2021.
Glencore is the sixth biggest holding in the Jupiter UK Alpha fund (4.2%).
When asked if this secondary exposure to Rosneft had made the fund more vulnerable to the economic sanctions being placed on Russia Buxton said he was not overly concerned about this.
“I suspect, if necessary, Glencore would adopt a similar exit and the value of its holding is extremely modest in relation to the size of the overall Glencore business,” he said, adding that it was a move he thought would be good for the business, given the negative sentiment around the company as it faces several lawsuits.
The company has come under fire in recent years, accused of corruption and bribery, antitrust and human rights violations, particularly concerning child labour, in various countries.
Glencore announced last month that it had set aside $1.5bn (£1.1bn) to cover potential fines and costs regarding these “legacy issues”, as Buxton called them.
In his update, the manager said he was still a “very happy holder” of Glencore after its new chief executive, Gary Nagle – who took on the role in 2021 – said that he aimed to resolve all these issues this year.
Buxton told Trustnet: “This is important because I know that there are an awful lot of investors who genuinely would not invest in Glencore until those issues are resolved and behind them.”
Regarding its Rosneft stake, he said if Glencore similarly “cleansed” itself of the stocks this could be “good news in the long run by removing obstacles to ownership”.