AAR bid for BP s 50 stake in TNK BP looks difficult

Speculation out in the markets this morning indicated that the billionaire quartet of Fridman, Khan, Vekselberg and Blavatnik which is represented by the AAR consortium are looking to acquire BP’s 50% stake in the TNK-BP joint venture and may launch a bid by mid-October.

Speculation has been on going about who may purchase BP’s 50% stake after the oil giant confirmed in June it was looking to sell their portion of the JV. AAR originally made clear that they would be willing to buy half of BP’s stake for a sum of around $10bn but that speculative offer was seen as undervalued by BP.

Recent weeks has shown that BP could look to use the sale of their stake to take equity in Russian oil giant Rosneft. A meeting between BP’s CEO Bob Dudley and Russia’s President Vladimir Putin last week is confirmed to have seen BP reiterate their commitment to stay in Russia, albeit even without their stake in TNK-BP, and to buy a stake in Rosneft. Rumours has also been flying that Rosneft is talking to various bankers in an effort to finance the purchase some or all of BP’s 50% stake in the joint venture with AAR.

A quick connection of the dots suggests far that unless AAR make a significant offer of well above $20bn for the 50% stake, a likely sweetener of around $25bn is seen as a minimum offer, then BP could look to sell their stake to Rosneft in return for cash and equity in Rosneft, ticking two boxes that BP is seeking to do. Given the somewhat volatile relationship between BP and AAR, it would appear that this still remains the most likely scenario amongst others that are visibly on the table thus far. Yet still, the politics of this deal remains a highly volatile element in the proceedings of BP’s stake sale in TNK-BP.

European markets start lower on growth concerns
European markets tracked a sell-off in US markets overnight to open lower by between 1% andf 1.7% as risk assets continued to be wound down by investors.

A profit warning by Caterpillar last night on slowing global growth followed that of a number of bellwether firms to cut their year estimates including FedEx. Chinese stocks also fell before the start to trading in European markets and were on track to suffer their biggest quarterly decline in a year as Chinese investors preserve cash on fears of a lack of impetus of Chinese monetary policy and slowing growth. Whilst the easing measures of the Federal Reserve, Bank of England, European Central Bank and Bank of Japan has helped to support broader global equity markets, it appears that western share markets are now playing catch up on the bearish moves seen in emerging markets to which established economies are relying on to speed global growth at a time of serious economic headwinds and austerity in Europe.

The bounce back in the Dollar Index from support levels is somewhat concerning, particularly as it comes despite the Fed’s open ended stimulus efforts, which is typically bearish for the US dollar. With the dollar seen as a defensive hedge, investment flows out of risk assets such as stocks is something that needs careful attention.

3 Factors to Watch

Three factors will dictate how long lived the correction we have seen in equity markets will last.

First and foremost, the motivation of investors to pick up stocks from their lows.

Secondly, monetary policy from the People’s Bank of China, which many investors are still awaiting developments on.

And finally, but of equal importance, developments in Spain. We have seen a German led move this week to call into question the ability of the ESM’s funds to directly fund Spanish banks as part of the original €100bn agreement to help Spain this summer. Add to that concerns over the strength of Rajoy’s government and Catalonia’s calls for a secession, Spain’s ‘willingness’ or ‘unwillingness’ to seek ECB assistance through Outright Monetary Transactions will likely play a large role in helping to suppress rising euro zone tensions in the market.