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. Last Updated: 07/27/2016

Miller: Rosneft Merger Is Near

Itar-TassGazprom chief executive Alexei Miller
Gas monopoly Gazprom is ready to merge with state oil firm Rosneft, Gazprom chief executive Alexei Miller said Wednesday, paving the way for foreigners to invest in shares of the merged entity.

"In fact, the merger of Rosneft is fully ready and could be carried out in the nearest future," Miller said in a statement following a meeting with Dresdner Kleinwort Wasserstein, which said it had completed its preparatory report on the merger.

The merger will boost the government stake in Gazprom to more than 50 percent from 39 percent now, allowing the lifting of curbs on foreign ownership.

Investors' enthusiasm for Gazprom, the world's largest gas company, peaked in mid-November but had begun to flag because of growing concern that the merger might be delayed.

Uncertainty grew when a U.S. court ruling blocked Gazprom from buying Yuganskneftegaz, an oil production company auctioned off to pay massive tax debts owed by the crippled Yukos oil firm.

But last week Industry and Energy Minister Viktor Khristenko said Yugansk would be spun off as a separate state-owned company, leaving the merger to continue without it.

Bob Foresman, Dresdner's head of Russian investment banking, was quoted in the Gazprom statement as confirming that the merger would go ahead without Yugansk.

The head of the Federal Property Management Agency, Valery Nazarov, told Interfax that — in the best case — the merger would take place in January, February or March, with the share liberalization following two or three months later.

"Preparations for liberalizing the market in Gazprom shares are going according to the planned timetable and in strict accordance with the orders given by the president and government of Russia," Miller said in an earlier statement Wednesday. "Liberalization of the market for its shares will take place in full, resulting in the liquidation of the ownership quota for nonresidents."

Currently non-Russians can only own Gazprom's American Depositary Shares, which trade in London at a premium to ruble-priced ordinary stock. Foreigners are currently banned from owning more than 20 percent of Gazprom.

"There are concerns that a large number of foreign investors will not have enough shares to swap their ADSs into. A few months ago, many people believed the foreign ownership limit would be increased to 49 percent from the current 20 percent, but now the noises we are hearing suggest it will only go up to 25 percent," said Martin Taylor, hedge fund manager at London-based Thames River Capital, which runs $5.5 billion of assets.

Gazprom was a star performer last year when its stock rallied by more than 100 percent on hopes of the share trade liberalization, promised by President Vladimir Putin.

Investors say Gazprom's market capitalization could double to $100 billion under a full liberalization. Gazprom would become the second-largest stock in the MSCI Emerging Market Index of 730 stocks, according to Renaissance Capital. "Further delays in the consolidation of Rosneft into Gazprom are possible, as it seems there is no agreement yet within the government on the scheme governing this transaction," Alfa Bank analysts wrote Wednesday.

"Gazprom continues to suffer from the lack of a resolution on the Yugansk issue and the threat of legal action hanging over it."

(Reuters, Bloomberg)