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The boss of Gunvor, one of the world’s biggest oil traders, has awarded himself a bumper $1bn dividend to sever his ties to a former Russian business partner who is the subject of US sanctions.
Its chief executive Torbjörn Törnqvist used the special $1bn dividend — possibly the largest in the history of oil trading — to settle a debt owed to Gennady Timchenko, an oligarch with close ties to the Kremlin.
Mr Timchenko, who co-founded Gunvor in 2000 with Mr Törnqvist, was placed on a sanctions list by the US on March 20 2014 because of links to Russian president Vladimir Putin. The sanctions were imposed after Russia’s annexation of Crimea.
The move briefly plunged privately held Gunvor into crisis because of fears that western banks and trading groups would no longer be willing to deal with the Geneva-based company.
Much was at stake — Gunvor had by this time transformed itself from a niche Russian oil trader into the world’s fourth largest independent player in the industry behind Vitol, Glencore and Trafigura.
Gunvor sought rapidly to address the US move against Mr Timchenko, revealing he had sold his 43 per cent stake in the company to Mr Törnqvist for an undisclosed fee the day before the sanctions were announced.
But Mr Timchenko did not receive immediate full payment for his Gunvor shareholding.
In 2014 and last year, Mr Timchenko was paid a limited amount of money by Mr Törnqvist for his Gunvor stake. The $1bn dividend that Swedish-born Mr Törnqvist secured from Gunvor has been used to fully pay Mr Timchenko for the holding.
“Payment to [Mr Timchenko] is final and there are absolutely no remaining commitments to [him] by either Mr Törnqvist or the group,” said Gunvor, after inquiries by the Financial Times.
The company added it had informed the relevant authorities about the transaction, which was carried out in euros and complied with restrictions placed on individuals affected by US sanctions.
Mr Timchenko remains the subject of US sanctions. At the time they were imposed in 2014, the US Treasury department said that Mr Timchenko’s “activities in the energy sector have been directly linked to Putin. Putin has investments in Gunvor and may have access to Gunvor funds”.
Among other things, the sanctions prohibit US citizens from conducting transactions with Mr Timchenko. A Treasury spokesman declined to comment on the dividend.
Gunvor has called the US Treasury’s statement “fundamentally misinformed and outrageous”, and has repeatedly denied the alleged links to Mr Putin or the Kremlin.
A spokesman for Mr Timchenko did not immediately respond to a request for comment.
The payment of the $1bn dividend to Mr Törnqvist comes after Gunvor reported net income of $1.25bn for 2015 — a record amount, and up 368 per cent compared with 2014.
Gunvor, like other oil traders, has made money amid volatile oil prices, for example by buying crude cheaply and agreeing to sell it on later at higher prices. Its 2015 profit was significantly boosted by the sale of a majority stake in a Russian oil terminal.
But the $1bn dividend payment is likely to raise eyebrows in the close-knit oil trading community.
There are few recorded instances of one-off, 10-figure dividends being made in any line of business, let alone ones that normally operates on razor-thin profit margins.
In its 2016 rich list, Forbes estimated Mr Timchenko’s net worth at $11.4bn, making him the 85th richest man in the world, and the fifth in Russia. It put Mr Törnqvist’s net worth at $1.8bn.
Even before Mr Timchenko sold his Gunvor stake, the company was shifting its focus away from Russia.
In a 2014 interview after the US imposed sanctions on him, Mr Timchenko said he and Mr Törnqvist had clashed over the direction of the company, with the Swedish businessman wanting to go global.
“The divorce at Gunvor was planned beforehand but the storm gathering over my head sped it up,” said Mr Timchenko.
After Mr Timchenko sold his Gunvor stake, the company accelerated its trading activities in regions including Africa, the Americas and Asia.
“For Gunvor, getting as far away as possible from Russian business was a matter of life and death,” said Jean-François Lambert, former head of structured commodity finance at HSBC.
Russia-origin commodities today amount to about 12 per cent of Gunvor’s total trading today — a far cry from the days when it handled one-third of the country’s seaborne crude exports.
With the ties to Mr Timchenko now fully severed, Mr Törnqvist is eyeing further significant changes at Gunvor.
The company intends to expand into new countries, including by opening an oil storage terminal in Indonesia.
It is also studying potential acquisitions, focusing on terminals and refineries. Gunvor has more than $1bn of cash on its balance sheet, and last week the company finished a $1bn revolving credit facility with banks.
Mr Törnqvist is also planning changes to Gunvor’s ownership and structure. At the end of 2014, after purchasing Mr Timchenko’s stake, Mr Törnqvist held 88 per cent of the company’s shares and 100 per cent of its voting rights.
His stake fell to 78 per cent last year because of an employee share ownership programme and bonuses paid in stock.
Under proposals for expanded employee share ownership aimed at rewarding about 200 senior staff and compensating them for the $1bn dividend, Mr Törnqvist will allow his stake to be further reduced, although he intends to retain a controlling interest.
Voting rights will also be awarded to employee shareholders as Gunvor aims to become a partnership.
The changes are designed to reduce the risk of concentrating too much power in Mr Törnqvist’s hands, or any other individual.
Privately held trading groups have become increasingly aware of the risk of becoming overly dependent on their founders and senior managers.