Moscow Times
December 28, 2005
Gazprom Open for Business
By Lyuba Pronina
Staff Writer
Russia will no longer be ignored by large international investment funds now that it has lifted the curbs on foreign ownership of Gazprom, analysts said Tuesday.
President Vladimir Putin on Friday signed the much-awaited law that ends the cap on foreign investment in the world's largest natural gas producer and exporter.
Until now, foreigners 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 Gazprom's London-listed American Depository Shares.
"Two years ago, people who were not directly involved in the Russian equity market did not know about Gazprom, and this year that has changed," said Alfa Bank chief strategist Chris Weafer.
Removing the so-called ring fence will help Gazprom to eventually be recognized as one of the top global energy giants, taking its place among BP, the United States' ExxonMobil and Saudi Arabia's Aramco, he said.
"This is a landmark event for the whole of our stock market," Gazprom chairman Dmitry Medvedev, who is also first deputy prime minister, told the Security Council on Friday.
Medvedev added that the move would also mean an opportunity to attract new, top-class foreign investors.
In January, the shares are expected to be listed on the Russian Trading System and the Moscow Interbank Currency Exchange, Gazprom officials said last week. As a result, the composition of domestic benchmark indexes is expected to change dramatically.
"With a current market capitalization of $160 billion, Gazprom will considerably skew the weighting of the indexes when it comes in," Weafer said, adding the next-biggest companies would be LUKoil, with $50 billion, and Surgutneftegaz, with $40 billion.
The biggest gain is expected to come when Gazprom enters the Morgan Stanley Capital International emerging market index, which is tracked by investors managing more than $3 trillion.
Weafer said many global investment funds had stayed away from Russia because of Yukos, but "once Gazprom comes to MSCI, Russia becomes too big to ignore."
Gazprom's weighting will rise at least tenfold after technical factors for liberalization have been completed, said William Browder, CEO of Hermitage Capital Management, which is a Gazprom shareholder and manages $3 billion in Russian assets. "A lot of people will buy Gazprom, whether they like the company or not," he said.
By signing off on the law, Putin made good on promises he made two years ago -- just days after the arrest of Mikhail Khodorkovsky, once Russia's richest man and owner of Yukos, which hurt the country's investment climate.
Putin said then that the gas shares liberalization would take months, not years, but the process was drawn out as different groups in the government fought over Gazprom's merger with state-owned oil company Rosneft.
Weafer said lifting the curbs provided practical evidence that the government cared about the perception of the investment climate in Russia.
"A lot of people see it as a counterbalance to Yukos," he said.