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Gazprom may issue shares to fund China gas infrastructure needs

ELENA MAZNEVA and KSENIA GALOUCHKO

NORMANDY, France (Bloomberg) -- OAO Gazprom may issue shares to pay for a pipeline to ship natural gas to China, raising concerns the Russian government will acquire a bigger stake in the nation’s largest company.

A stock sale is one of several options to fund infrastructure needed for Gazprom’s recently signed 30-year supply contract with China, Russian President Vladimir Putin told reporters yesterday, June 6, in Normandy, France. The Russian government may buy additional shares in Gazprom, which is already about 50% state-owned. The Moscow-based company might also get the funds from Chinese prepayments or “raise money from the market,” Putin said.

Putin is pivoting to Asia as a buyer of his nation’s gas as the U.S. and European Union threaten to expand sanctions targeting Russia amid violence in eastern Ukraine. Western leaders have accused Putin of using energy producer Gazprom as a foreign-policy tool.

After more than a decade of talks, Gazprom signed an agreement on May 21 to start supplying gas to China in 2018 to 2020. The estimated total value of the deal is about $400 billion. Development of two East Siberian gas fields and a link to China will cost about $55 billion, Putin said last month.

Sergei Kupriyanov, a spokesman for Gazprom, declined to comment on Putin’s remarks.

The proposal to sell shares in Gazprom is “strange” because the company has ability to build the pipeline without selling shares, said Vadim Bit-Avragim, who helps oversee about $4.1 billion at Kapital Asset Management LLC in Moscow.

“Gazprom shares will remain under big pressure since the government is planning additional capitalization, which may dilute existing shareholders’ stakes,” he said.

All Gazprom shareholders have a preferential right to purchase additional stocks if there is a new issue under the Russian law, said Ivan Mazalov, director at Prosperity Capital Management in Moscow. The company has the ability to build all needed infrastructure for the Chinese agreement using loans, prepayments and its own cash, he said. Gazprom Deputy CEO Alexander Medvedev said May 22 the company may get $25 billion from prepayments on the contract.

“Additional share issue is a far-fetched idea,” said Mazalov, whose fund owns more than $300 million worth of Gazprom shares.

06/07/2014

 

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