Gazprom Asks for Eased Share Rules

In a move to boost its capitalization and borrowing power, the board of natural gas monopoly Gazprom asked the government Friday to liberalize regulations on trading its shares.

The board also asked the government to let its shares be sold at two of the countrys main trading venues so that both foreign and local investors could buy local shares and convert them into American Depositary Receipts, or ADRs.

Under current regulations dubbed the "ring fence" foreign individual investors are barred from directly holding domestic shares in Gazprom and only have the right to take a stake in the company through ADRs, which cover 10 shares and are traded at a heavy premium approximately $9 compared with roughly $0.30 for individual local shares.

Apart from limiting foreigners to ADRs, Gazprom also caps total foreign ownership at 20 percent. As a result of the restrictions, however, current total foreign ownership in the gas giant is only 5.48 percent 1.8 percent through ADRs, with the rest belonging to Germanys Ruhrgas.

Members of the board rejected a proposal to increase the permitted level of foreign ownership in the company up to 40 percent.

Analysts said the government is likely to comply with the boards requests, which would not only give Gazprom increased liquidity but also allow it to attract the investment it desperately needs to stem falling production

The boards decision was also seen as a partial victory for Boris Fyodorov, a representative of minority shareholders on the board who led the charge to end the two-tier system. The board didnt go as far as Fyodorov wanted, however, which was to eliminate the ring fence all together.

Steven Dashevsky, oil and gas analyst for the Aton brokerage, said that the moves will be "strongly beneficial to domestic shareholders" and give a massive raise to the companys liquidity.

Domestic shares are currently traded only on the tiny Moscow Stock Exchange, which Yury Kafiev of the investment bank Olma said is the reason Gazproms liquidity has plummeted over the past four years.

The board wants its shares traded on the Russian Trading System, or RTS, and the Moscow Interbank Currency Exchange, or MICEX, in addition to the Moscow exchange. The Aton brokerage said Friday that Gazprom shares would most likely be made available on the RTS and MICEX exchanges by December or January.

Konstantin Reznikov, oil and gas analyst at Alfa Bank, said that purchases of ADRs will steadily diminish as foreign investors gain access to Russian stock exchanges. "ADRs will continue to exist, but foreigners will buy domestic shares," he said.

Another positive outcome of the meeting was the support expressed for limiting Gazproms ability to transfer its assets, said United Financial Groups Dmitry Avedeyev.

Ahead of a planned privatization tender next year, the government has adopted strict rules on Gazproms ability to manipulate its equity interest in various companies. "Gazprom cannot reduce the shares in its subsidiaries without permission," Avedeyev said.

As expected, the board also approved the purchase of a controlling stake of 38 percent in the Siberian Urals Petrochemicals Co., or Sibur, as well as approving Gazproms participation in the establishment of a factory for the production of wide-diameter pipes.

Investors on the Moscow exchange reacted immediately and favorably to the developments shooting up 5 percent directly after the boards afternoon announcement before cooling to finish up 3.8 percent at 8.73 rubles (31 cents).