Shadow banking, broadly described as intermediation by
non-banks such as hedge funds, private capital and venture
funds, has so far escaped traditional banking regulation even
though some regulators say it worsened the global financial
crisis.

Rebuilding bank capital and the fight to save the euro have
taken absolute priority over the past five years.

But Financial Stability Board head Mark Carney told the
World Economic Forum in Davos that central bankers will finally
be addressing this “forgotten bit of reform” as they try to
complete a overhaul of financial regulation over the next two
years.

“Shadow banking, over-the-counter derivatives, these are the
areas that absolutely amplified the last crisis and will do so
again unless we complete our agenda,” said Carney, who will
leave his current job of Bank of Canada governor to head the
Bank of England in July.

The shadow banking sector has been booming since the onset
of the global financial crisis in 2007 and stood at $67 trillion
worldwide last year according to data from the FSB.

The fact that banks had been forced to hoard capital to
build larger buffers against risks has opened up room for new,
non-bank players to come into these segment, especially to
provide credit to smaller firms.

“Shadow banking is a reality. Investors that had been
traditionally providing equity are now providing debt,” said
Stefano Aversa, co-president of AlixPartners.

“This is not just the traditional loan-to-own space but we
also see much loan-to-loan to fill up the gap created by the
credit crunch.”

NEW PROPOSALS

The FSB is expected to make proposals on how to regulate
this dark area of the financial sector before the G20 autumn
summit in Russia, where the issue will be debated, regulatory
sources told Reuters.

The issue has become controversial also in China, where the
$2 trillion sector has come under more closer scrutiny after the
default of an unregulated short-term fund distributed through a
Shanghai branch of Hua Xia Bank Ltd.

Such high-yield products are known locally as ‘wealth
management products’.

“You can’t say shadow banking is a bad thing simply because a
lot of people don’t understand it,” argued Hony Capital CEO John
Zhao, whose firm has $7 billion in assets under management.

“When a country’s economy is growing as fast as China’s,
it’s inevitable that different forms of financing will appear.
They serve real needs, and serve to fill little areas that the
banking system cannot reach.”

JP Morgan Chase CEO Jamie Dimon also defended the
sector at a panel session in Davos, saying they provided
necessary services to the economy.

But AlixPartners’ Aversa conceded that there was an issue
when it came to transparency.

“We’ve seen a lot of activity move away from the banks, to
the capital markets,” Zhu Min, deputy managing director of the
International Monetary Fund said.

“Both the banks and the shadow banks should have a proper
regulatory framework to govern them.”

After a private meeting of leading commercial bankers,
government officials, central bankers and trade union officials,

Swedish Finance Minister Anders Borg told Reuters: “There is
a clear divide between the financial markets, who think a lot of
this is fixed, and the people in the real economy and
particularly from our side as the governments.”

Unemployment in Europe would only fall from 11.8 to 11.7
percent this year, growth was stagnant, real wages were not
rising in most countries and it would take countries such as
Sweden and France years to reform their labour markets, he said.

“So it is very dangerous to declare that the crisis is over
because that would undermine the crisis insight that we need to
have among the companies, among the population, among the
unions, to be able to go through this process,” Borg said.

Sweden is not a member of the 17-nation euro zone and Borg
has been among the strongest critics of the bloc’s handling of
its sovereign debt crisis since late 2009.

International Monetary Fund Managing Director Christine
Lagarde and Deutsche Bank co-chief executive Anshu Jain, who
co-chaired the closed-door meeting on the sidelines of the World
Economic Forum in Davos, declined to speak to reporters.

Participants said the mood this year was far more relaxed
than 12 months ago, when there was a sense of emergency about
saving the single currency from break-up.

European Central Bank President Mario Draghi left Davos for
home before the meeting and EU Economic and Monetary Affairs
Commissioner Olli Rehn, who was in Davos, did not attend.

Lagarde said in a speech on Thursday it was vital for
Europe, the United States and Japan to keep up the momentum for
economic reform and put their public finances in order at an
appropriate pace, without crushing growth.

Chinese central bank deputy governor Yi Gang, who attended
the session, said he had voiced most concern about trade
protectionism and the negative consequences of money-printing by
the U.S., Japanese, British and other central banks.

“Protectionism is a big problem and also you see
quantitative easing of developed economies is generating
uncertainties in financial markets in terms of capital flow,” he
told Reuters in an interview.

“There is too much liquidity, a glut of global liquidity.
Competitive devaluation is certainly one aspect of that. If
everybody is QE or super QE and you want to depreciate, what
currency do you depreciate against?”

One senior European commercial banker, who declined to be
identified, said financial market optimism that the risk of a
break-up of the euro was over had gotten ahead of reality.

“The crisis is not over and the notion that tail risk is
gone is a dangerous one,” the banker said.

The economic term “tail risk” refers to the possibility of
an asset suddenly losing value due to a rare event.

Rehn told Reuters the conclusion of this year’s Davos
meetings about the euro was “no tail risk, growing confidence,
no complacency, stay the course”.

However, a larger-than-expected early repayment of cheap
three-year loans by some euro zone banks to the European Central
Bank on Friday fuelled sentiment that the worst of the single
currency’s debt crisis is now over and markets are stabilising.

Banks are expected to repay more than 130 billion euros of
crisis loans to the European Central Bank next week in a sign
that at least some parts of the financial system are returning
to health.

The ECB made over 1 trillion euros in ultra-cheap three-year
loans to banks in lending operations in December 2011 and
February 2012, a process which ECB President Mario Draghi said
had “avoided a major, major credit crunch”.

(Writing by Paul Taylor; editing by Jason Neely)

Among the top bankers and officials present at the meeting on Thursday were Bank of Canada Governor Mark Carney, JP Morgan Chase Chief Executive Jamie Dimon, Citigroup CEO Mike Corbat and HSBC Chairman Douglas Flint. Carney is due to take over as head of the Bank of England later this year.

Swiss bank UBS reached a $1.5 billion settlement in December with U.S. and British regulators over its role in the manipulation of the London interbank offered rate, a benchmark used for trillions of dollars of financial instruments ranging from home loans to complex derivative products. It was the second bank to settle, after Britain’s Barclays.

U.S. British and other regulators are investigating more than a dozen global banks over manipulating the rate, which is compiled from data banks submit about how much interest they are charged for loans from other banks.

Weber used the meeting of bankers at the annual World Economic Forum in the Swiss Alpine resort to argue that an industry-wide settlement – similar to deals which have been struck with U.S. regulators in the past – would prevent further reputational damage to the industry.

One of the sources said that although the idea was discussed briefly during the meeting, there was no agreement on pursuing it. UBS declined to comment on the meeting, which was held in private. The sources spoke on condition they not be named.

Details of the rigging of the Libor rate in settlements reached with UBS and Barclays provoked public and political outrage. In the case of Barclays, fined $450 million, it led to the departure of its chief executive and chairman.

Britain’s Royal Bank of Scotland is expected to become the third bank to reach an accord, with a deal involving a financial penalty of up to 500 million pounds expected within days or weeks, sources have said.

Other banks being investigated include Deutsche Bank, Citigroup, HSBC and JPMorgan.

A group settlement was considered last year, people familiar with the banks’ thinking told Reuters at the time, but the idea was not pursued because it was deemed too complicated to achieve.

Some banks were keen to pursue a group deal with regulators rather than face a Barclays-style backlash by going it alone.

The sources last year said discussions about a group settlement initially took place before the Barclays agreement, and picked back up in the aftermath, following the severity of the reaction to Barclays.

For banks, a collective agreement would reduce the risk that any individual bank will be singled out and face a particular backlash. A group agreement could appeal to financial watchdogs because they would be able to announce a headline-grabbing figure and show that they were dealing firmly with the banking industry’s misdemeanours.

The main obstacles facing a group settlement are likely to be a hesitancy on the part of the investment banks to work together in the fevered atmosphere surrounding the Libor investigations, and the large number of regulators involved in investigating cases.

Since the Barclays settlement, talks to reach agreements with banks have become more complex and bogged down by legal issues, banking sources have said.

(Reporting by Alexander Smith,; Financial Industry Editor; Editing by Steve Slater and Peter Graff)

Among the top bankers and officials present at the meeting on Thursday were Bank of Canada Governor Mark Carney, JP Morgan Chase Chief Executive Jamie Dimon, Citigroup CEO Mike Corbat and HSBC Chairman Douglas Flint. Carney is due to take over as head of the Bank of England later this year.

Swiss bank UBS reached a $1.5 billion settlement in December with U.S. and British regulators over its role in the manipulation of the London interbank offered rate, a benchmark used for trillions of dollars of financial instruments ranging from home loans to complex derivative products. It was the second bank to settle, after Britain’s Barclays.

U.S. British and other regulators are investigating more than a dozen global banks over manipulating the rate, which is compiled from data banks submit about how much interest they are charged for loans from other banks.

Weber used the meeting of bankers at the annual World Economic Forum in the Swiss Alpine resort to argue that an industry-wide settlement – similar to deals which have been struck with U.S. regulators in the past – would prevent further reputational damage to the industry.

One of the sources said that although the idea was discussed briefly during the meeting, there was no agreement on pursuing it. UBS declined to comment on the meeting, which was held in private. The sources spoke on condition they not be named.

Details of the rigging of the Libor rate in settlements reached with UBS and Barclays provoked public and political outrage. In the case of Barclays, fined $450 million, it led to the departure of its chief executive and chairman.

Britain’s Royal Bank of Scotland is expected to become the third bank to reach an accord, with a deal involving a financial penalty of up to 500 million pounds expected within days or weeks, sources have said.

Other banks being investigated include Deutsche Bank, Citigroup, HSBC and JPMorgan.

A group settlement was considered last year, people familiar with the banks’ thinking told Reuters at the time, but the idea was not pursued because it was deemed too complicated to achieve.

Some banks were keen to pursue a group deal with regulators rather than face a Barclays-style backlash by going it alone.

The sources last year said discussions about a group settlement initially took place before the Barclays agreement, and picked back up in the aftermath, following the severity of the reaction to Barclays.

For banks, a collective agreement would reduce the risk that any individual bank will be singled out and face a particular backlash. A group agreement could appeal to financial watchdogs because they would be able to announce a headline-grabbing figure and show that they were dealing firmly with the banking industry’s misdemeanors.

The main obstacles facing a group settlement are likely to be a hesitancy on the part of the investment banks to work together in the fevered atmosphere surrounding the Libor investigations, and the large number of regulators involved in investigating cases.

Since the Barclays settlement, talks to reach agreements with banks have become more complex and bogged down by legal issues, banking sources have said.

(Reporting by Alexander Smith,; Financial Industry Editor; Editing by Steve Slater and Peter Graff)

Among the top bankers and officials present at the meeting
on Thursday were Bank of Canada Governor Mark Carney, JP Morgan
Chase (JPM.N: Quote, Profile, Research) Chief Executive Jamie Dimon, Citigroup (C.N: Quote, Profile, Research) CEO
Mike Corbat and HSBC (HSBA.L: Quote, Profile, Research) Chairman Douglas Flint. Carney is
due to take over as head of the Bank of England later this year.

Swiss bank UBS reached a $1.5 billion settlement in December
with U.S. and British regulators over its role in the
manipulation of the London interbank offered rate, a benchmark
used for trillions of dollars of financial instruments ranging
from home loans to complex derivative products. It was the
second bank to settle, after Britain’s Barclays (BARC.L: Quote, Profile, Research).

U.S. British and other regulators are investigating more
than a dozen global banks over manipulating the rate, which is
compiled from data banks submit about how much interest they are
charged for loans from other banks.

Weber used the meeting of bankers at the annual World
Economic Forum in the Swiss Alpine resort to argue that an
industry-wide settlement – similar to deals which have been
struck with U.S. regulators in the past – would prevent further
reputational damage to the industry.

One of the sources said that although the idea was discussed
briefly during the meeting, there was no agreement on pursuing
it. UBS declined to comment on the meeting, which was held in
private. The sources spoke on condition they not be named.

Details of the rigging of the Libor rate in settlements
reached with UBS and Barclays provoked public and political
outrage. In the case of Barclays, fined $450 million, it led to
the departure of its chief executive and chairman.

Britain’s Royal Bank of Scotland (RBS.L: Quote, Profile, Research) is expected to
become the third bank to reach an accord, with a deal involving
a financial penalty of up to 500 million pounds expected within
days or weeks, sources have said.

Other banks being investigated include Deutsche Bank
(DBKGn.DE: Quote, Profile, Research), Citigroup, HSBC and JPMorgan.

A group settlement was considered last year, people familiar
with the banks’ thinking told Reuters at the time, but the idea
was not pursued because it was deemed too complicated to
achieve. [ID:nL2E8IK00K]

Some banks were keen to pursue a group deal with regulators
rather than face a Barclays-style backlash by going it alone.

The sources last year said discussions about a group
settlement initially took place before the Barclays agreement,
and picked back up in the aftermath, following the severity of
the reaction to Barclays.

For banks, a collective agreement would reduce the risk that
any individual bank will be singled out and face a particular
backlash. A group agreement could appeal to financial watchdogs
because they would be able to announce a headline-grabbing
figure and show that they were dealing firmly with the banking
industry’s misdemeanors.

The main obstacles facing a group settlement are likely to
be a hesitancy on the part of the investment banks to work
together in the fevered atmosphere surrounding the Libor
investigations, and the large number of regulators involved in
investigating cases.

Since the Barclays settlement, talks to reach agreements
with banks have become more complex and bogged down by legal
issues, banking sources have said.

(Reporting by Alexander Smith,; Financial Industry Editor;
Editing by Steve Slater and Peter Graff)

((alex.smith@thomsonreuters.com)(thomsonreuters.com)(+44 207
542 8983))
Keywords: BANKS LIBOR/SETTLEMENT

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the Reuters group of companies around the world.

“One market where we see plenty of opportunity is Africa,” Peter Sands, Standard Chartered’s (STAN.L: Quote, Profile, Research, Stock Buzz) chief executive, said during an interview. “It’s a part of the world that doesn’t get so much focus because everyone, quite rightly, is all excited about India and China and the whole ASEAN region.”

Chinese banks were among the first to make their way into the continent, with ICBC (1398.HK: Quote, Profile, Research, Stock Buzz), the world’s biggest bank by market value, having bought a 20 percent stake in South Africa’s Standard Bank (SBKJ.J: Quote, Profile, Research, Stock Buzz) in 2007.

Since then, other banks have started making their way into the region, mostly to facilitate trade between Africa and resource-hungry China. HSBC’s (HSBA.L: Quote, Profile, Research, Stock Buzz) chief executive for the Middle East and North Africa Simon Cooper called this “south-south trade.”

“There’s a lot of work facilitating companies from China that want to go to Africa and we expect such trade to continue to grow,” Cooper said in an interview.

Asian companies such as Chinese telecoms equipment maker Huawei HUA.UL have been in Africa for years, building infrastructure such as telecoms towers in countries from Libya to Kenya.

“We’ve invested in companies that are doing a lot of work in Africa,” said John Zhao, chief executive of Hony Capital, a private equity firm with some $7 billion in assets under management.

“We see the weak infrastructure in some African countries as an opportunity. If everything was already perfect, they wouldn’t need us any more, would they?”

Acquisitions and other such attempts to grow in Africa have often proved difficult to pull off successfully. In 2011, HSBC walked away from a bid for South Africa’s Nedbank (NEDJ.J: Quote, Profile, Research, Stock Buzz), saying it failed to meet its acquisition requirements.

The revenue pie for banks in Africa is also far smaller than in other regions, with total investment banking fees in Africa and the Middle East about $1 billion last year compared with Asian fees which clocked in at almost 10 times that.

“There are always risks, but if we go in only when it’s big and everything is grown up, that makes things a lot more difficult,” said Zhao at Hony Capital.

(Editing by David Holmes)

However, a recent rebound in banking shares – which has pushed the Thomson Reuters Global Banks index up five percent this year – possibly hides a crisis still threatening the existence of many in the sector as its leaders meet in Davos.

The Libor rigging scandal, rogue trading, mis-selling, the breaking of anti-money laundering rules and debate over staff bonuses have all ensured the banks remain in the dog house, four years after the financial crisis brought many to their knees.

Banks and financial service companies were once again at the bottom of the pile in the Edelman “Trust Barometer”, released this week in Davos where many bankers are attending the World Economic Forum. Although they scored slightly better in the survey of 26 countries than last year, only 50 percent of respondents said they trust banks and financial institutions, against a 77 percent score for technology companies.

Many are producing profits for shareholders again, but the rules of the game have changed and banks and their advisers recognize it will take years to rebuild public confidence.

“Banks need to change their business models. Financial service providers need to be reminded that it all about service to clients and clients need to be put back at the core. Self-interest has to take a backseat,” Axel Weber, former Bundesbank chief and now Chairman of Swiss bank UBS, said on Wednesday.

With senior industry figures predicting that only a handful of major global banks will emerge stronger from the financial crisis, the outlook for those that do not is uncertain. JPMorgan, HSBC and Bank of America Merrill Lynch are those most often mentioned among the winners, with smaller players suffering from higher capital requirements, a low interest rate environment and stiffer regulatory demands.

This has prompted action to cut costs and focus on what bankers often describe as their “core competencies”. UBS, for instance, has cut 10,000 jobs and pulled back from areas such as fixed income trading. Many banks have also staged wholesale retreats from certain businesses, such as commodity trading, or selective withdrawals from countries or regions.

Some, including JP Morgan Chairman and Chief Executive Jamie Dimon, say the basic banking model is not broken and that the excesses of the pre-crisis period have been curtailed. “You want financial services, you just don’t want them to be leveraged or (to) blow up,” Dimon said during a panel discussion involving bankers, regulators and politicians.

Others at Davos say banks have largely put their shops in order and are now concentrating on trying to make money.

“Generating earnings in this environment is not that easy; we have gone from crisis mode to normal boring stuff about how will the business grow,” one senior banker told Reuters.

But others such as Weber think an overhaul is still required for the industry to reinvent itself. “Banks need to get a new strategy…at the same time we need to deal with the legacy. You need to separate from the past, that’s a necessary condition. We need to move forward in a different mode,” Weber said.

REGULATORY RESPITE

The mantra of putting customers first echoes around the corridors in the Swiss Alpine ski resort, but this is still drowned out by protests about the unintended consequences of regulations aimed at preventing another crisis.

“We should have better regulation, but not necessarily more. We will not achieve (economic) growth unless we have a proper financial industry that lends money that fuels growth,” said Andrey Kostin, Chairman and Chief Executive of Russia’s VTB Bank.

One of the unintended consequences of the regulatory drive which has followed the financial crisis is, say bankers, greater consolidation of the industry.

So rather than preventing banks from being “too big to fail” after the collapse of Lehman Brothers, the drive to require them to hold more capital and more liquid assets in the event of markets drying up, has had the opposite effect.

“The irony is that the big are getting bigger,” the senior banker said, adding that the costs of developing IT was an example of where scale was critical. “If you don’t have a substantial business, it just kills your margins,” he added.

The industry has fought back against some of the regulations and earlier this month successfully convinced the Basel Committee on banking supervision to push back the date by which they must increase their so-called liquidity buffers.

BEHIND THE BOUNCE

A period of greater stability in the euro zone has been one factor behind investors’ interest in bank stocks. European banks dominate the top 10 risers in the Thomson Reuters Global Banks Index, with seven spots.

Shares in the benchmark Eurostoxx 600 banks index had already risen 23 percent last year, clawing back much of the 33 percent loss in 2011. Gains came as banks tackled costs and investors took heart from the European Central Bank’s promise to do “whatever it takes” to preserve the euro.

Analysts had expected a more muted start to 2013, but Europe’s banks have risen another 7.5 percent in the year to date. Banks on the troubled “periphery” of the euro zone have enjoyed the biggest 2013 increases. Eight of this year’s top 10 performers are from countries such as Italy, Ireland, Greece, Portugal and Spain – those which have gained the most from relative euro zone stability.

But some in the industry say this may provide only temporary respite for the banks that are no longer able to compete on scale with the big “universal” global banks.

“We will see more do what UBS did. It is pretty hard to make the numbers work. None of the investment banks are having an easy time of it at the moment,” the senior banker said.

(Additional reporting by Laura Noonan, Ben Hirschler; Editing by David Stamp)

Bankers familiar with Rosneft’s plans to finance the $55 billion deal to buy Russia’s No.3 oil firm say the state-controlled oil major was strongly encouraged by high investor demand for a recent $3 billion bond offering.

Demand for the two-tranche Eurobond deal last month topped $20 billion, but Rosneft decided to limit the size, leaving investors clamoring for more, three financial sources familiar with the matter told Reuters.

“They can do a very large transaction in public markets,” said one source acquainted with Rosneft’s financing plans, adding that a multi-tranche deal of up to $10 billion could be launched before the deal’s expected closing in early 2013.

Rosneft declined to comment.

Rosneft is paying relatively low interest on its most recent Eurobonds – 3.1 percent on $1 billion in notes due in March 2017 and 4.2 percent for $2 billion in bonds maturing in March 2022.

It is also talking to oil majors and traders including Shell (RDSa.L: Quote, Profile, Research, Stock Buzz), Total (TOTF.PA: Quote, Profile, Research, Stock Buzz) and Glencore (GLEN.L: Quote, Profile, Research, Stock Buzz) to raise up to $10 billion, secured against future oil exports, sources have told Reuters.

The takeover would create the world’s top listed oil firm by output, pumping the equivalent of 4.6 million barrels per day, twinning TNK-BP’s cash-generating prowess with Rosneft’s deep reserves of oil, which are sufficient to last a quarter of a century.

TOTAL CONTROL

In Russia’s largest-ever acquisition, Rosneft will buy out British oil major BP’s (BP.L: Quote, Profile, Research, Stock Buzz) half stake in TNK-BP for $17.1 billion in cash and 12.8 percent of its own shares.

CEO Igor Sechin this week signed a binding deal to buy the other half of TNK-BP for $28 billion in cash from a quartet of Soviet-born oligarchs represented via the AAR consortium. Full payment is to be made on closing.

The outright takeover will secure a windfall of TNK-BP dividends that have gone unpaid this year, while the target’s low debt level would give the merged business a better credit standing than Rosneft’s alone.

Even now, Rosneft’s borrowing costs are already well covered by cash flows, with a net debt to core profit ratio of 0.91 on an annualized basis.

In its recent Eurobond prospectus, Rosneft said it would be able to draw on over $15 billion in existing cash resources at Rosneft and TNK-BP, covering a third of the $45.1 billion cash component of the takeover.

Rosneft also said it had received a commitment from a syndicate of international banks to lend it approximately $30 billion, including up to $7.5 billion in long-term financing.

In addition to the Eurobond program of up to $10 billion, Rosneft still has the capacity to borrow $2.4 billion from a $3 billion rouble bond issuance program, the prospectus added.

So-called off take finance is also mentioned: Rosneft has raised significant funds in the past in this way, including a $15 billion loan from China in 2009 as part of a major deal to pump oil via a new Siberian export pipeline.

Sechin, for his part, has highlighted possible non-core asset sales to help fund the TNK-BP, including Rosneft’s minority stake in the Caspian Pipeline Consortium, which ships oil from Kazakhstan to the Black Sea.

Bankers say Rosneft could end up raising more cash than necessary to close the TNK-BP deal, which would help it cover the cost of launching new fields in the Arctic and a $25 billion program to upgrade its oil refineries.

The final size of the syndicated loan could exceed the $30 billion named in the prospectus, with $35-$40 billion potentially on the table from Western banks, and Russian banks also likely to chip in.

“The company did a road show, and it received commitments from bankers that exceed its financing needs,” said a second source familiar with Rosneft’s discussions with bankers.

“Bankers are queuing up, there is so much commitment and willingness to participate. I’ve never seen anything like it. They are fully covered from the western banking community.”

Given investor demand for Rosneft exposure, syndicated bridge financing could be quickly refinanced into longer-term arrangements, bankers say. “The syndicated loan won’t be out there for long,” the first source said.

(Writing by Douglas Busvine; Additional reporting by Megan Davies and Oksana Kobzeva; Editing by Will Waterman)

Bankers familiar with Rosneft’s plans to finance the $55
billion deal to buy Russia’s No.3 oil firm say the
state-controlled oil major was strongly encouraged by high
investor demand for a recent $3 billion bond offering.

Demand for the two-tranche Eurobond deal last month topped
$20 billion, but Rosneft decided to limit the size, leaving
investors clamouring for more, three financial sources familiar
with the matter told Reuters.

“They can do a very large transaction in public markets,”
said one source acquainted with Rosneft’s financing plans,
adding that a multi-tranche deal of up to $10 billion could be
launched before the deal’s expected closing in early 2013.

Rosneft declined to comment.

Rosneft is paying relatively low interest on its most recent
Eurobonds – 3.1 percent on $1 billion in notes due in March 2017
and 4.2 percent for $2 billion in bonds maturing
in March 2022.

It is also talking to oil majors and traders including Shell
, Total and Glencore to raise up to
$10 billion, secured against future oil exports, sources have
told Reuters.

The takeover would create the world’s top listed oil firm by
output, pumping the equivalent of 4.6 million barrels per day,
twinning TNK-BP’s cash-generating prowess with Rosneft’s deep
reserves of oil, which are sufficient to last a quarter of a
century.

TOTAL CONTROL

In Russia’s largest-ever acquisition, Rosneft will buy out
British oil major BP’s half stake in TNK-BP for $17.1
billion in cash and 12.8 percent of its own shares.

CEO Igor Sechin this week signed a binding deal to buy the
other half of TNK-BP for $28 billion in cash from a quartet of
Soviet-born oligarchs represented via the AAR consortium. Full
payment is to be made on closing.

The outright takeover will secure a windfall of TNK-BP
dividends that have gone unpaid this year, while the target’s
low debt level would give the merged business a better credit
standing than Rosneft’s alone.

Even now, Rosneft’s borrowing costs are already well covered
by cash flows, with a net debt to core profit ratio of 0.91 on
an annualised basis.

In its recent Eurobond prospectus, Rosneft said it would be
able to draw on over $15 billion in existing cash resources at
Rosneft and TNK-BP, covering a third of the $45.1 billion cash
component of the takeover.

Rosneft also said it had received a commitment from a
syndicate of international banks to lend it approximately $30
billion, including up to $7.5 billion in long-term financing.

In addition to the Eurobond programme of up to $10 billion,
Rosneft still has the capacity to borrow $2.4 billion from a $3
billion rouble bond issuance programme, the prospectus added.

So-called offtake finance is also mentioned: Rosneft has
raised significant funds in the past in this way, including a
$15 billion loan from China in 2009 as part of a major deal to
pump oil via a new Siberian export pipeline.

Sechin, for his part, has highlighted possible non-core
asset sales to help fund the TNK-BP, including Rosneft’s
minority stake in the Caspian Pipeline Consortium, which ships
oil from Kazakhstan to the Black Sea.

Bankers say Rosneft could end up raising more cash than
necessary to close the TNK-BP deal, which would help it cover
the cost of launching new fields in the Arctic and a $25 billion
programme to upgrade its oil refineries.

The final size of the syndicated loan could exceed the $30
billion named in the prospectus, with $35-$40 billion
potentially on the table from Western banks, and Russian banks
also likely to chip in.

“The company did a road show, and it received commitments
from bankers that exceed its financing needs,” said a second
source familiar with Rosneft’s discussions with bankers.

“Bankers are queuing up, there is so much commitment and
willingness to participate. I’ve never seen anything like it.
They are fully covered from the western banking community.”

Given investor demand for Rosneft exposure, syndicated
bridge financing could be quickly refinanced into longer-term
arrangements, bankers say. “The syndicated loan won’t be out
there for long,” the first source said.

(Writing by Douglas Busvine; Additional reporting by Megan
Davies and Oksana Kobzeva; Editing by Will Waterman)

O’Leary, his face largely obscured by a black-hooded top and dark glasses was whisked past waiting reporters in the mixed zone at the Olympic sailing venue at Portland, close to the English seaside town of Weymouth.

The sailor, still wearing his wetsuit, made no comment when asked about the betting probe, after making a strong start in racing in the heavyweight Star class.

However, James O’Callaghan the Irish sailing team’s performance director told reporters shortly afterwards: “The issue is sub-judice so we have no comment to make.”

O’Leary’s crew mate David Burrows, declined to comment on the allegation, which came to light on earlier this week when the International Olympics Committee (IOC) said an unnamed Irish athlete was being investigated by his national committee.

Burrows was, however, willing to talk about the duo’s performance on the water in their two-man Star boat.

“It was tricky out there today. It was hard to get the strategy right,” Burrows said, adding he was “glad to have the first day over”.

O’Leary and Burrows were second in the afternoon’s first race behind the French Star crew and recorded a sixth position in the second race. On points, this put the Irish crew in second position behind Brazilian sailing legend Robert Scheidt and his crew Bruno Prada.

O’Leary’s Irish National Olympic Committee could expel him from the Games, if they find him guilty of breaking any of their rules regarding gambling.

(Editing by Ossian Shine)