By Justin Baer And Alexander Kolyandr
MOSCOW-- Morgan Stanley scotched a deal to sell an oil-trading
and storage business to Russia's OAO 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, said
Monday the two sides had terminated their contract after they
failed to win U.S. clearance on the deal amid tensions over
Russia's intervention in Ukraine.
The agreement won't 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 Ltd., an Australian bank eager to build out its
commodities-trading arm, is among the firms that has expressed
interest in the business, people familiar with the matter said
Monday.
Rosneft had agreed to buy the assets for several hundred million
dollars, The Wall Street Journal reported earlier this year.
Several analysts said they didn't 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 U.S. regulators to shed physical commodities assets that might
pose risks to Wall Street firms and the markets. Other banks,
including J.P. Morgan Chase & Co. and Goldman Sachs Group Inc.,
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 2013. The two
companies then pursued the necessary regulatory approvals,
including one from a confidential U.S. committee that vets security
risks. They told investors they expected to complete the
transaction in the second half of 2014.
Morgan Stanley had sought to head off Washington's concerns
about 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 have said.
The Wall Street firm sold its interests in TransMontaigne, as well
as related inventory, to NGL Energy Partners LP.
Meanwhile, the situation in Ukraine deteriorated. In April, U.S.
officials added Rosneft President Igor Sechin to a sanctions list
that restricts travel and freezes assets. And as the U.S. 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, people familiar with the matter have said.
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 wouldn't agree to
break the deal before it expired in late December, the people said.
That agreement meant Morgan Stanley couldn't 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
Monday.
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% 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 have said.
In its statement announcing the deal, the firm said the
transaction wasn't "material."
Morgan Stanley has maintained one of Wall Street's biggest
commodities-trading businesses for decades. Since the financial
crisis, though, the division has been shrinking. The firm told a
Senate subcommittee last year that annual revenue had dropped to
$912 million in 2012 from $3 billion in 2008.
Christian Berthelsen and Georgi Kantchev contributed to this
article.
Write to Justin Baer at justin.baer@wsj.com and Alexander
Kolyandr at Alexander.Kolyandr@wsj.com
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