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. Last Updated: 07/27/2016

Investors Await Gazprom Vote

Gazprom's long-awaited annual shareholders meeting Friday will decide the gas monopoly's future — whether or not it will continue to violate minority shareholders' rights to the benefit of management.

On the agenda is the election of the board of directors, whose composition will determine how fast and how easily things will change at the company. Gazprom expects exports to decrease 5 percent to 10 percent this year, and analysts say that its financials lag behind those of industry peers.

To add to the excitement, a current board member withdrew his name Thursday from the list of candidates for next year's board.

In March, President Vladimir Putin declared that he was fed up with the monopoly's behavior and ordered Gazprom to take steps to increase its transparency. Gazprom, if managed properly, should be one of Russia's most valuable assets, analysts contend. Putin made it clear that Gazprom needs to be more accountable to its owners. He had his own interests in mind: With 38 percent, the government is the largest shareholder and receives a large portion of Gazprom's revenues in taxes.

Other major shareholders include German Ruhrgas with 4.6 percent, holders of American Depositary Receipts with 3 percent to 4 percent and Gazprom "management-related structures" with 44 percent.

When Putin replaced longtime Gazprom CEO Rem Vyakhirev with Deputy Energy Minister Alexei Miller, the markets rejoiced. Local shares — which cannot be bought legally by foreigners — have jumped more than 50 percent since then. ADRs are up 37 percent.

"The Gazprom meeting will go a long way toward determining how justified is the optimism," said Roland Nash, equity strategist with the Renaissance Capital brokerage. "It will be Miller's real test and will show whether he has the capacity to sweep away Vyakhirev-era cobwebs."

Vyakhirev's reign saw assets potentially worth billions of dollars transferred out of the company. These assets — natural gas fields and stakes in lucrative subsidiaries — landed in the hands of sons and daughters of former and current Gazprom managers.

Currently the government has five of 11 representatives on the board of directors. Management has four. One seat is taken by Ruhrgas. Boris Fyodorov, representing minority shareholders, also has a seat.

To push its reforms through, the government needs one more member to make a majority.

The day before the actual shareholders meeting, the government may have attained it. Interfax reported that current board member and Stroitransgaz president Arngolt Bekker took his name off the list of candidates up for election. Stroitransgaz could not be reached for comment.

It is unclear who will benefit from Bekker's withdrawal, said Dmitry Avdeyev, an analyst for the investment house United Financial Group, which was founded by Fyodorov. Bekker's withdrawal could help the government by removing a player from the other team. Or his absence could lead management's shares to vote for other, stronger candidates.

"It looks like the 'old' management is trying to optimize their position," Avdeyev said. "They only have so many votes to go around, and they want their best people in. Bekker obviously didn't make the cut."

UFG predicts that the 'old' management team that ran the company with Vyakhirev will receive two or three seats at the most. The government should reap six or seven.

Stroitransgaz has been at the heart of corruption accusations levied against Gazprom. For example, the pipeline- construction company received guarantees worth 5.8 billion rubles ($200 million) from Gazprom last year. Stroitransgaz co-owners include Vyakhirev's daughter, Tatyana Dedikova, and sons of Bekker and Ambassador to Ukraine Viktor Chernomyrdin, Gazprom's founder and Vyakhirev's predecessor.

While the shareholders meeting will be a barometer for Gazprom reform, other events are still to follow. An audit of Gazprom's relationship with Itera, the world's No. 7 gas producer, was supposed to be disclosed at Friday's meeting but has been delayed. Also, Putin's working group for share liberalization is to make its report next month.