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. Last Updated: 07/27/2016

Gazprom Investors Facing 'Pivotal' Fight

Saturday's shareholders meeting at powerful Gazprom is shaping up as a pivotal proxy battle as factions fight for votes to win a swing seat on the natural-gas monopoly's 11-member board of directors.


Moscow brokers said Friday that Gazprom has approached some investment banks that hold fewer than the 16 million shares required to vote at the meeting, asking them to let the company vote their shares.


"There are a lot of brokers with not that many shares, less than the 16 million shares needed to vote," said one broker who asked not to be identified. "Gazprom has been acquiring a lot of votes this way in the past few days. I authorized them, because unless you're really big there's no point in not doing so."


Another broker also said Gazprom had suggested signing off on his stock, "but they didn't say to whom I should consolidate them. I decided not to do anything."


On the other side of the battle lines, investment bank Renaissance Capital and Uneximbank also are reported to be lobbying Russian and foreign shareholders in an effort to cobble together enough stock to win the 11th swing-vote seat.


The way Gazprom's shareholdings break down now, analysts widely expect management and the Russian government to win five seats each.


The Wall Street Journal on Wednesday quoted Renaissance Capital President Boris Jordan as saying that his firm planned to vote its shares with Uneximbank, but declined to confirm speculation that together they hold roughly 5 percent of Gazprom.


Andrei Vavilov, former deputy finance minister and current president of Uneximbank subsidiary MFK, agreed to represent the outside investors after serving as a Gazprom board member briefly this year, the paper said.


Gazprom Chairman Rem Vyakhirev, however, said Gazprom managers already know most foreign shareholders will vote in agreement with them, Interfax reported.


Currently the government owns 40 percent of Gazprom while the company's management owns about 35 percent. Ownership of the remaining 25 percent is unclear, although analysts have said Gazprom likely owns more stock through subsidiaries.


The shareholder breakdown has created what could be a powerful swing seat for which Renaissance and Uneximbank are currently fighting hard to gain control. Their success would create a precedent of sorts, as outside investors are typically kept far away from management positions of top Russian companies, especially the prized monopolies.


Some analysts said control of the seat could allow outsiders to lobby hard for doing away with Gazprom's two-tier trading system, under which the company's local shares are off limits to foreigners. The system has created a market whereby domestic shares trade at about one-fifth the price available on international markets through American Depositary Receipts.


Analysts speculated that Uneximbank and Renaissance may try linking up with pro-reform government board members, either to oust old guard members or simply scrap the two-tier system sooner than might otherwise happen.


With restrictions lifted and foreigners back in the domestic market, Gazprom's local share price would likely rocket up to meet the price of ADRs.


"First, this is a battle about the pro-reform members of government getting rid of old guard," said one Moscow-based oil and gas analyst. "Second, Uneximbank and Renaissance want a seat on the board because they know Gazprom is undervalued, and they stand to make a lot of money" if the program is abandoned.


Other analysts said, however, that the government is unlikely to drop the program, given that even First Deputy Prime Minister Boris Nemtsov has publicly backed blocking foreigners from Gazprom's domestic market.