May 14, 2013 / 2:01 PM / in 6 years

UPDATE 2-Gunvor sees traders extending control of assets

* Believes oil majors will focus on upstream production

* Gunvor makes first big disclosure as part of bond issuance

* Only Timchenko, Tornqvist have voting rights (Updates with more details from prospectus)

By Dmitry Zhdannikov and Emma Farge

LONDON/GENEVA, May 14 (Reuters) - Gunvor will beef up its assets by buying or building refineries and terminals from Asia to Africa as opportunities for trading grow with oil majors shifting their focus to producing energy, the trading house said on Tuesday.

Gunvor outlined the plans in its first prospectus to investors as it seeks to raise at least $200 million via a bond issue. The firm is co-owned by Gennady Timchenko, seen as one of the closest allies of Russian president Vladimir Putin.

Gunvor’s rival Glencore several years ago began its journey to a record share offering by issuing a prospectus for its debut bond to introduce investors to its structure and strategy.

Gunvor has said it has no plans for a listing in the short or medium term.

“The global market opportunity set for independent traders... continues to grow as major producers of crude oil and refined products, especially the large integrated oil companies, place increasing emphasis on upstream exploration, development and production and reduce emphasis on their other traditional downstream activities, which include refining and marketing,” Gunvor said.

It added that changes brought by the U.S. shale oil production boom and increasing demand from high-growth emerging markets in Asia were creating new opportunities for traders to play a more active role in shifting global oil flows.

“Gunvor continues to consider new investments in oil products terminals, LNG (liquefied natural gas) terminals, mini refineries and downstream facilities in Latin America, Africa, Central Asia and South Asia,” it said.

Gunvor has long dominated trade of Russian oil but has significantly cut its exposure over the past year. It has bought coal assets in Russia and the United States, two refineries in Europe and built new storage capacity over the past few years.

Gunvor said its management considered Vitol, Trafigura, Mercuria and Glencore Xstrata as its main competitors with similar business models and attitude to beefing up physical assets.

New assets have allowed Gunvor to raise revenues steeply although profit margins have thinned, reflecting broader trends in the trading industry.

The company said its revenues rose to $93.1 billion in 2012 from $87.3 billion in 2011. Net profit fell to $301.1 million in 2012 from $329.7 million a year earlier.

This resulted in annual profit margin of just 0.32 percent although core earnings or EBITDA have risen by 7 percent in 2012 to $575 million. Gunvor said it had made its record profit of $621.2 million back in 2009, when market volatility was big.

Large commodity trading houses with tens of billions of dollars in annual revenue have often struggled to convert higher traded volumes into profits.

Glencore has said its margins in the oil sector are below 1 percent and top oil trader Vitol had a gross margin of just 0.8 percent in 2011 - the last year for which data was available.


Gunvor’s spectacular growth from a small trader into one of the world’s top houses in just 10 years has sparked criticism from Russian opposition figures, who have said the firm has benefitted from Timchenko’s political connections.

The company and Timchenko have repeatedly denied it has enjoyed any special favours.

Gunvor said only two men have voting shareholder rights, Timchenko and chief executive Torbjorn Tornqvist, who each have 50 percent in the company.

“A disagreement between the two controlling shareholders could prevent key strategic decisions from being made,” the company warned in the prospectus describing all existing risks to its businesses.

“In the event these shareholders are unable to continue to collaborate effectively with each other and with other management, Gunvor’s business could be materially harmed,” it added.

It also said some of its senior employees owned non-voting shares, representing 12.3 percent of capital and due to increase to 12.8 percent in May-June.

In 2012, a one-off award of equity-settled share-based payment to senior employees amounted to $83.6 million, it said, in a move that could have reduced total net profits for that year.

Gunvor said it employed 1,634 people as of the end of 2012, including 503 terminal operators, 604 refinery workers and 493 in trading. (Additional reporting by Olesya Astakhova in Moscow; Editing by Anthony Barker)

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