By Justin Baer And Christian Berthelsen
Morgan Stanley said its sale of certain oil-trading and storage
businesses to OAO Rosneft may fall apart, as tensions between the
U.S. and Russian governments leave the deal in limbo.
"In the current environment there can be no assurance that the
transaction will close, especially in light of the existing
contractual requirement that all necessary approvals be received by
year-end," a Morgan Stanley spokesman said in a statement.
Previously, Morgan Stanley had said it planned to close the deal in
the second half of the year.
"Should the deal not close, we would consider a variety of
options that take into account the interests of our shareholders,
clients and employees," said the spokesman.
Morgan Stanley, which reached an agreement with the state-run
energy company in December, is running out of time to win approval
from a confidential U.S. committee that weighs national security
risks, before its agreement with Rosneft expires at year's end.
The spokesman declined to comment on the sale's regulatory
review. Rosneft representatives didn't respond to requests for
comment.
Morgan Stanley executives have grown increasingly pessimistic
about the deal's prospects, people familiar with the matter said.
The Wall Street Journal reported in July that the companies
submitted the deal for review by the Treasury's Committee on
Foreign Investment in the U.S. It's unclear if CFIUS has rejected
the sale or if the companies withdrew their application. The two
sides could choose to resubmit the application, one person
said.
Confidence that the sale will ever secure CFIUS's blessing has
faded as the U.S. escalated its response to Russia's interference
in Ukraine. Those relations frayed further in August, when Russia
was accused of providing aid and artillery to Ukrainian rebels.
The standoff has provoked other would-be buyers of Morgan
Stanley's trading and storage assets to ask about the business's
availability, people familiar with the matter said. The firm still
has a contract with Rosneft, and the energy company has indicated
it will not seek to break the agreement before it expires, the
people said.
Morgan Stanley will consider other buyers if the agreement with
Rosneft unravels, the people said.
The spokesman said Morgan Stanley will continue to operate the
business, which includes an inventory of oil and a 49% stake in
tanker operator Heidmar Holdings LLC. The firm had reached
retention agreements with employees slated to be transferred to
Rosneft following the sale, guaranteeing some of their pay, people
familiar with the matter said.
Morgan Stanley had sought to head off Washington's concerns over
the transaction by running a separate sale process for its
TransMontaigne unit, which owns oil storage facilities and
pipelines on U.S. soil, people familiar with the matter said. The
Wall Street firm sold its interests in TransMontaigne, as well as
related inventory, to NGL Energy Partners LP.
The U.S. reaction to Russia's interference in Ukraine has
escalated, and in April officials added Rosneft President Igor
Sechin to a sanctions list that restricts travel and freezes
assets.
Mr. Sechin told Bloomberg News on Sept. 26 that Rosneft would
continue to work on the deal even if the regulatory scrutiny had
clouded its chances. "Clearly, the contradictory position of the
American regulators doesn't allow us to say with any certainty that
we will close this deal, " he said. "On one hand, the regulators
demanded that Morgan Stanley sell this business."
"Morgan Stanley found a buyer," he added. "And now the regulator
won't allow the buyer to conclude this deal."
Morgan Stanley had agreed to sell the assets to Rosneft for
several hundred millions of dollars, the Journal reported earlier
this year. In its statement announcing the deal, the firm said the
transaction wasn't "material."
Write to Justin Baer at justin.baer@wsj.com and Christian
Berthelsen at christian.berthelsen@wsj.com
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