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. Last Updated: 07/27/2016

Gref: Gazprom Price Agreed On

The government has agreed with Gazprom on the value of the 10.7 percent stake it wants to buy in the gas giant, Economic Development and Trade Minister German Gref said Tuesday, the day before a key meeting that could see the price announced.

Gref refused to disclose the price but said that it would be between $6 billion and $8.5 billion. "There is a mutual understanding with Gazprom," he told reporters at the St. Petersburg International Economic Forum, Interfax reported.

At current market valuations, 10.7 percent of Gazprom would be worth about $7.4 billion.

Gazprom declined to comment Tuesday.

The deal, aimed at boosting the government's stake in Gazprom to a controlling one, is crucial for lifting restrictions on foreign ownership of Gazprom shares, a move long awaited by investors. The liberalization of Gazprom's shares could turn it into an emerging market heavyweight to rival South Korea's Samsung.

But the plan, first announced by President Vladimir Putin last September, has been bogged down for months, and initial plans to boost the government's stake in Gazprom by merging state-owned Rosneft into the gas giant were scrapped due to potential legal risks and political infighting over the terms of the merger.

The government now looks likely to stick to its timetable for gaining a majority stake in Gazprom before the company's June 24 annual general meeting, even though financing for the deal does not yet look to be fully nailed down, bankers said.

"By the AGM, I believe we'll have the price agreed and most of the execution worked out," said Bob Foresman, managing director of investment banking at Dresdner Kleinwort Wasserstein in Moscow, which has been working with Gazprom on the deal. "We're not drinking the champagne yet, but we're ordering it."

He refused to disclose any information regarding the price, which Gazprom is set to agree on at a board meeting Wednesday. "We're just waiting for the price to be determined. Tomorrow we will hopefully find out," he said.

The deal is to be conducted under a complicated scheme in which the government will buy shares in Gazprom via a vehicle created specially for the transaction, Rosneftegaz. Rosneftegaz will temporarily hold the state's 100 percent stake in Rosneft and raise bank financing for the government's purchase of the 10.7 percent Gazprom stake. It should then pay back the loans by floating shares in Rosneft.

Despite the legal risks surrounding Rosneft since its controversial acquisition last December of former Yukos production unit Yuganskneftegaz, bankers said that Western banks could be ready to provide bridge loans to finance the deal. ABN AMRO, which already has a substantial loan portfolio to Rosneft, could be a leading participant, several bankers said.

But one banker said the actual transfer of money from Western banks could take many months to close. The authorities "have lost so much credibility that they will announce the deal and execute it from one standpoint. But it will be closed legally much later," the banker said, requesting anonymity because of the sensitivity of the situation.

He said Western banks were unlikely to step up with financing until the terms of the deal were clearer. In the meantime, he said, state-owned banks such as Vneshtorgbank and Sberbank could make commitments to provide the bulk of the financing, possibly together with ABN AMRO and Barclays Bank. The state-owned banks could then go through the logistics of refinancing that loan with other Western banks, which might end up transferring money as late as the beginning of next year.

Initial financing commitments from state banks could mean that the government would either essentially dip into its own pockets for up to $7 billion to raise the state's stake in Gazprom, or get the stake at first for free.

"They will probably announce the deal as being done, but I don't think the money will appear on Gazprom's accounts until much later. What they will get will be more like an IOU," the banker said.

ABN AMRO did not return a call for comment Tuesday on whether it might lead the banks financing the deal.

As Yugansk's new owner, Rosneft faces potential lawsuits from Yukos shareholders and is loaded down with almost $20 billion in debts, raising the risks for banks considering a financing deal. It is already in technical default of an international loan backed by Yugansk supplies.

While the deal will leave Rosneft carrying the can for legal risks, the buyback plan for Gazprom shares should free the gas giant from any potential lawsuits, bankers said. "The state will be taking the hit because they own Rosneft and they won't be imposing it on a bunch of minority investors in Gazprom," one banker said.