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. Last Updated: 07/27/2016

Gazprom Tells State To Sell Part of Stake




Russia has held on to its Gazprom stake and used it as a tool for economic policy.


Struggling to collect cash to meet its budget obligations, Russia is considering raising about $1 billion by selling a small portion of its stake in Gazprom to a foreign investor, Gazprom chief Rem Vyakhirev said Tuesday.


"We proposed to the state that it unblock a few percent of its 40 percent stake for the money it could receive from our strategic partner," Vyakhirev said at a news conference. Russia could raise up to $1 billion by selling 2 percent to 3 percent of Gazprom, he added.


Gazprom's foreign strategic partners include Royal Dutch/Shell and Italy's ENI, both of which have agreed to jointly develop reserves with Gazprom and have expressed a desire to own equity in the company.


"We have been talking about this for two and a half months but the government has not used this opportunity yet," Vyakhirev said.


Russia has always closely guarded its 40 percent stake in Gazprom, the nation's biggest enterprise and a powerful tool of domestic and foreign policy.


In selling off even a small portion of Gazprom, particularly at a time when Russian shares are depressed, Russia would underscore its urgent need to feed its starved federal budget.


"It is a world class company and literally the one thing Russia can point to and say, hey, ours is better than yours," said Stephen O'Sullivan, co-head of research at United Financial Group. "It's very important to retain control of that."


According to Russian law, foreign ownership in Gazprom is limited to 9 percent of the company, while no single foreign investor can own more than 3 percent. Gazprom holds 9 percent of the company as treasury stock to be sold to foreign investors as American Depository Receipts or convertible bonds.


Should the government sell part of its 40 percent stake to a foreign oil company, it could increase the amount of total Gazprom stock available to foreigners. A State Property Ministry spokesman would not comment on Vyakhirev's statement.


Grand Bowie, director of Shell's Russia operations, said he wasn't aware of any plans for Shell to buy the Russian government's Gazprom stock.


The Anglo-Dutch oil major, however, still plans to buy up to $1 billion worth of the convertible bonds Gazprom plans to issue from its treasury stock when financial markets recover.


Shell agreed to purchase the bonds to help fund the joint venture it formed with Gazprom in November. The two companies plan to produce up to 500,000 barrels of oil and gas per day, beginning with deposits in the Arctic Zapolyarnoe field.


ENI, which joined with Gazprom in February to develop oil and gas fields in Russia's southern Astrakhan region, could not be reached for comment. At the time of the partnership signing, Vyakhirev said ENI wanted to buy 2 percent to 3 percent of Gazprom's stock.


Analysts couldn't explain why one of Gazprom's foreign partners would want to buy shares from the federal government and not from Gazprom itself.


"The money goes to the government, and Gazprom doesn't get the money it needs for joint venture projects," said Jim Henderson, an oil analyst with MFK Renaissance.


Vyakhirev stressed that Gazprom has little cash to spare for the upcoming privatization auction of the oil company Rosneft, which the gas giant is considering buying together with LUKoil and Shell.


"Shell will provide the money" for Rosneft if the companies decide to bid, Vyakhirev said. "Neither we nor LUKoil have the money. So it will be as Shell decides."


The partners will meet June 20 to discuss their Rosneft bid.