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. Last Updated: 07/27/2016

Gazprom: Foreign Ownership Cap to Stay

Russia is unlikely to allow foreigners to own more than 20 percent of Gazprom but wants to cut the difference in price between foreign-traded shares and local stock, a Gazprom official said Tuesday.

The market is awaiting a report by a group set up by President Vladimir Putin to consider if restrictions on share ownership should be removed and trade in its shares liberalized.

Alexander Semeniaka, a member of the working group and on Gazprom's board, played down expectations for a big change. "Our work is based on existing mechanisms. Currently, the talk is about the first stage of liberalization and the 20 percent quota for foreigners will remain," he told reporters.

Semaniaka said the group had agreed not to disclose concrete ways to make Gazprom's shares more attractive for investors until the Russian president signed a final document. But he added: "First of all we want to increase the liquidity of the stock and to minimize the difference between the prices of the internal and the external markets."

Foreigners are allowed to hold American Depositary Shares in Gazprom. But their price, around $9 for a packet of 10 shares, compared with the cost of the local stock, around 15 rubles ($0.512), has led to calls for both classes of shares to be opened up.

Apart from being unfair, the ring-fence system has also been criticized for preventing Gazprom from raising new funds.

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Officially, foreign ownership is 11.5 percent, but the government says "gray schemes" have enabled foreign investors to acquire more than that, possibly already up to 20 percent. Officially, 3.42 percent of shares are traded on the market and 4.58 percent are owned by Gazprom's Netherlands-based arm, Gazprom Finance B.V. Germany's largest gas company, Ruhrgas, owns 5 percent; 3.5 percent is registered as ADSs. The government has 38.37 percent.

Semeniaka said the government was not looking to punish the semi-legal schemes, but would try to raise official foreign participation in Gazprom to 20 percent by market methods.

"Basically, there are two ways to do it. We can convert some local shares into ADSs under special conditions. The main beneficiaries here are semi-legal scheme owners. Another option is to attract foreigners to the internal market," he said.

Both options would work only if the government decides to set up a system of auctions for foreigners, he said. "It has no importance which system is chosen. What is important is to narrow the difference between the two markets, which will make all semi-legal schemes unprofitable," he added.

Semeniaka said he estimated annual Gazprom share turnover in Russia at 10 percent of its share capital. However, he did not think Gazprom should become fully publicly traded.

"Long-term investors are very important for us. The best way is to have strategic investors with 80 percent of our shares and the remaining 20 percent with portfolio investors," he said.

Gazprom has entered strategic alliances over the last five years with German firms Ruhrgas and BASF, Italian Eni and Royal Dutch/Shell. All companies have said they want to buy Gazprom shares, but only Ruhrgas has so far done so.