Gazprom Wants 2-Tier Auction System

The management of Gazprom is taking initial steps to fulfill a promise made on Oct. 27 by its board to liberalize the market in the natural gas monopoly's shares.

Gazprom executive Alexander Semenyaka announced the new proposals Wednesday at a conference of professional stock market participants in St. Petersburg, Izvestia reported.

The management's primary proposal is to launch a two-tier auction system.

During the first auction, Russian shareholders will buy local shares from either Gazprom or the government, which they will subsequently sell to foreign investors at a second auction.

"The holding of auctions will increase the liquidity of Gazprom shares, both on the domestic and on the external market," Interfax reported Semenyaka as saying.

Foreigners own a total of 5.3 percent of Gazprom's shares. German gas firm Ruhrgas holds a 3.8 percent stake, while the remaining shares are traded as American Depositary Receipts.

ADRs are a device to allow foreign firms to buy over-the-counter on the New York Stock Exchange tradable certificates that cover a set number of shares.

However, foreigners are prohibited from buying Gazprom's domestic shares and the auction system would give them a means to do so.

An auction system would enable foreigners to buy Gazprom’s domestic shares.

United Financial Group brokerage said Thursday in a research note that the real motive of the Gazprom management in putting forward the new proposals is to preserve the existing wall between domestic and foreign shareholders.

It said the auctions would effectively create "a third class of Gazprom shares" as the shares to be sold to foreigners will not be convertible into existing ADRs.

UFG contends that Gazprom's new proposals will only benefit insiders and advises investors not to support them.

Semenyaka also said Gazprom management will resume its efforts to raise the limit on foreign ownership from 20 percent to 40 percent.

The management is promoting the two-tier auction system and the lifting of limitations on foreign ownership despite both proposals being rejected by the company's board.

Steven Dashevsky, oil and gas analyst at the Aton brokerage, however, interprets the proposals more positively.

He said the new proposals indicate the company's commitment to liberalize its market of shares. He admitted that they represent a "half-way measure" and "don't go as far as some would like."

Semenyaka also said the company plans to allow Gazprom shares to be traded on more exchanges, including the Russian Trading System and the Moscow Interbank Currency Exchange.

In Moscow, Gazprom is exclusively traded on the Moscow Stock Exchange.