hurdles

Russian energy group Lukoil is looking to sell its foreign assets due to new U. S. and UK sanctions. Gunvor, a Swiss trading firm, is interested in acquiring these assets but faces financial challenges, as Lukoil is three times larger than Gunvor based on equity. Lukoil’s foreign assets include European refineries, shares in oilfields in places like Kazakhstan and Iraq, and numerous retail fuel stations globally.

Lukoil International GmbH reported $22 billion in equity in 2024, with significant cash and fixed assets. Reports suggest that Lukoil’s asset valuation remains unchanged, and the company has no debt. In contrast, Gunvor reported equity of $6.8 billion and has a substantial cash position, but borrowing $18 billion to purchase Lukoil’s assets would be highly challenging for them.

Gunvor’s current debt-to-equity ratio is negative due to high cash reserves. However, taking on large debt to fund the acquisition could push the ratio above acceptable limits for lenders, as banks typically prefer a ratio of no more than 1.5. Alongside financial hurdles, the deal will face regulatory approvals in the countries where Lukoil operates, such as Iraq and Kazakhstan. Gunvor now has more significant operations in the U. S. and has distanced itself from its past connections to Russia.

Complicating the sale, Lukoil has ongoing projects with major international oil companies, which may have rights to purchase assets if Lukoil decides to sell. Gunvor is currently waiting for approval from U. S. regulators, with plans to avoid selling back to Lukoil if sanctions are lifted. Authorities in Bulgaria and other countries have also shown intentions to change laws regarding Lukoil’s properties.

With information from Reuters