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Kremlin Backs Gazprom Deal With Rosneft
BY ALEX NICHOLSON Associated Press Writer
MOSCOW (AP) -- Russian energy giant Gazprom said Tuesday it would acquire state-owned oil company Rosneft in a stock swap expected to ultimately ease restrictions on foreign investment in the world's biggest natural gas producer. Gazprom shares surged 15 percent.
Analysts welcomed the proposal, which gives the Russian government a controlling stake in Gazprom - a key condition for President Vladimir Putin's long-promised lifting of limitations on share ownership.
"Soon we will have a large company, that in the future would be turned into a transnational company of world significance," Prime Minister Mikhail Fradkov said in comments carried Tuesday evening by the Interfax news agency.
Foreigners now are barred from owning local stock in Gazprom, which is the largest supplier of natural gas to Europe and controls 10 percent of the world's natural gas reserves.
While an estimated 6 percent to 8 percent of local Gazprom stock is owned by foreigners domestically through various indirect schemes, only 4.42 percent of the company's shares trades on foreign stock exchanges - at a considerable premium.
Gazprom will swap 10.7 percent of its stock for 100 percent of Rosneft, according Gazprom chief executive officer Alexei Miller. The government currently owns 39 percent of Gazprom.
Analysts believe Rosneft is worth between $4.6 and $4.8 billion, according to Dow Jones NewsWires.
"This is a deal that the market has been waiting for for a long time. It will be a real locomotive for the whole Russian stock market," Miller said. The acquisition should be completed by the end of the year, he said.
Chief strategist at Alfa Bank Chris Weafer said the merger laid the foundations for the creation of a state-controlled energy giant that could eventually include Yuganskneftegaz, a 1 million barrel per day subsidiary belonging to the beleaguered Yukos oil giant, which is being prepared for sale by authorities to help satisfy Yukos' massive back-tax debts.
In light of the Kremlin's legal clampdown on Yukos, whose value has collapsed by 75 percent since its $45 billion peak capitalization, the news that Gazprom reform was under way was particularly heartening for investors.
The government prosecution of oil giant Yukos and its jailed billionaire owner Mikhail Khodorkovsky for alleged fraud and tax abuse has been widely viewed as retribution for Khodorkovsky's political activities.
"I would say this is a watershed moment for the Russian stock market," said William Browder, chief executive officer at Hermitage Capital Management, which has $1.5 billion under management from U.S. and European investors.
"From the beginning of the stock market's history in 1992 there has been this phenomenon where the country's biggest and most important company was closed to foreign money," he said. "This will effectively open the market to a huge amount of Western money."
The swap will also boost Gazprom's oil output from some 220,000 barrels per day to about 1 million, Miller told news agencies. The combined company will have an estimated 652.7 trillion cubic feet of gas reserves and 2.4 billion barrels of crude oil reserves, Dow Jones NewsWires reported.
Shares in Gazprom closed up 15 percent at 67.73 rubles ($2.30) on Moscow's RTS exchange.
© 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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