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. Last Updated: 07/27/2016

Foreign Buyers Snap Up Gazprom

Shares in Gazprom closed up 13 percent Tuesday, as the gas monopoly's local stock opened to international investors for the first time following a government reform put in place by President Vladimir Putin at the end of last year.

The company's stock was also helped by the much-publicized deal Gazprom struck with Ukraine over the New Year's holiday, which is expected to boost its revenues by an estimated $2 billion annually.

"This is something that investors have been waiting for for nearly a decade. It's the end of an era," said James Fenkner, a managing partner at Red Star Asset Management fund.

While local shares are not yet available on either of the two main Moscow trading platforms, the RTS and MICEX, brokers with access to the smaller St. Petersburg Stock Exchange, where Gazprom locals are currently sold, were snapping up shares for foreigners.

"We have been getting foreigners into Gazprom locals as quickly as we can," Roland Nash, head of research at investment bank Renaissance Capital, said by telephone Tuesday.

No less than 57 million shares changed hands Tuesday, Nash said, roughly double the figure previously considered a good day's trading.

"What happened today is that it is a level playing field, international investors are treated equally to Russian investors, they do not need to hide behind the local structure," Fenkner said.

Until now, foreign ownership in Gazprom had been limited to 20 percent of the company's shares. Unable to buy the gas giant's stock domestically, the only option for foreign investors was to buy its London-listed American Depositary Shares.

Yet analysts estimate that foreigners already own more than 20 percent as a result of quasi-legal gray schemes that allowed foreigners to buy rights to the gas giant's shares through Russian companies.

For Gazprom, it is a momentous event, Fenkner said, because the whole idea of the two-tier system employed to protect the company from being bought by foreigners on the cheap is no longer in place.

Gazprom shares surged 13 percent to a record 219.80 rubles ($7.60) by the close of trading Tuesday in St. Petersburg, the first business day in Russia after the weeklong New Year's break.

Although trade was opened to foreigners Tuesday, trading in Gazprom locals is not expected to begin in earnest until the shares are included in the dollar-denominated Russian Trading System and ruble-priced Moscow Interbank Currency Exchange, analysts said.

"In practice, we are not expected to see much volume in the following two weeks," said Chris Weafer, the chief strategist at Alfa Bank.

"The systems for settlement of transactions [at the RTS and MICEX] are not yet in place," he added.

A source in Gazprom said late Tuesday, however, that was is only a matter of days before the RTS and MICEX joined in the Gazprom stock trade.

"There are no limits left; any foreigner can buy as much shares as he likes," he said.

Weafer said the rise in Gazprom's local price on Tuesday followed 15 percent growth in the price of ADSs over the past five days, with the Russian market catching up after taking the first week in January as a holiday.

In addition to the upcoming share liberalization, investors had cheered the deal that Gazprom struck with Ukraine last Wednesday, days after turning off its supply of gas in a dispute over prices.

Under the deal, Ukraine's state-owned gas company agreed to nearly double the price it pays for Russian gas.

"The reason they like it is the $1.5 billion to $2 billion in extra revenue every year Gazprom will generate from sales to Ukraine. Secondly, it confirms that Gazprom is moving away from its role as a proxy for Russia's foreign aid program," Weafer said.

Looking ahead, analysts do not, however, expect Gazprom shares to continue posting gains for the rest of the year.

"Gazprom shares will only surge again if it buys more oil assets like it did with Sibneft last year," said Dmitry Mangilev, an oil and gas analyst with brokerage Prospekt.

Gazprom last year paid $13.1 billion for 72 percent in oil major Sibneft, which was previously controlled by Chukotka Governor Roman Abramovich.

Similarly, growth on the RTS and MICEX indexes, which last year broke the 1,000-point mark for the first time, is expected to slow this year.

"We won't see the same growth as in 2005," said Sergei Zagoruiko, a trader at MDM Bank, estimating the RTS would not go beyond 1,300 or 1,400 this year.

Still, given the high level of oil prices, there will be something of a post-New Year's rally, Zagoruiko said.

The RTS closed up 5.8 percent at 1,190.34, while the MICEX climbed 5.3 percent to 1,064.91.

Russia's largest oil producer, LUKoil, soared 7 percent to a record $63.55, while the No. 4 oil major, Surgutneftegaz, surged 13 percent to $1.227.

Staff Writer Catherine Belton contributed to this report.