Page 6 - FSUOGM Week 12 2021

FSUOGM COMMENTARY FSUOGM

Russia mulls share issue at

Gazprom to fund gasification drive

The move would unnerve shareholders by hurting value, but it is unlikely

RUSSIA RUSSIA continues to weigh up options for fund-
ing a $25bn, 10-year gasification programme,
WHAT: with the government reportedly suggesting the
Russia is considering issue of new shares in Gazprom as a solution.
the issue of shares in The shares would be bought by the gov-
Gazprom among other ernment, according to a state report seen by
options to pay for a Vedomosti this week. This would essentially
10-year gasification mean that the government would help fund the
programme. gasification programme in return for equity in
the state gas supplier. Deputy Prime Minister
WHY: Alexander Novak estimates that the programme
The government would needs an extra RUB500-600bn ($6.74-8.09bn)
presumably buy the in support.
shares, thereby providing The Russian state currently holds a con-
the funds. trolling stake in Gazprom through state-
owned Rosneftegaz and Rosgazifikatsiya,
WHAT NEXT: while almost 50% of shares are free-floated.
It is the first time such a Analysts warn such a move would hurt share- coal-dependent settlements.
proposal has been made, holder value. The government is considering several other
although it is considered “Increasing the government’s stake in Gaz- options for funding the work. One is to finance
likely to be adopted. prom would inevitably lead to the dilution of it from Gazprom’s investment programme,
minority shareholders and therefore could be although this could lead to a loss of budget reve-
negatively perceived by the market, unless a nues, through lower dividends, the provision of
tangible premium to the existing valuation were tax breaks or low-cost debt financing from the
offered, which is unlikely, in our view,” VTB Cap- National Wellbeing Fund, VTBC notes.
ital (VTBC) equities analyst Dmitry Loukashov Another option on the table is an increase in
said in a statement to NewsBase. the indexation of wholesale prices and a require-
VTBC considers the likelihood of the shares ment that independent producers such as Ros-
being placed as low. However, it sees this option neft and Novatek direct some additional money
as "potentially [advantageous] to the govern- they receive from the indexation to the gasifica-
ment because, although it bears an additional tion programme.
one-off expense, it has the potential to recoup The government might also consider a tem-
the funds through future dividend payments, porary excise tax until the programme is com-
while keeping Gazprom's debt burden in check." plete, according to Vedomosti. But this proposal
Igor Yushkov, a lead analyst at the National was not included in the report. Other solutions
Energy Security Fund, added that the move that were dropped included the creation of a sin-
would require the consent of minority share- gle gasification operator, the use of RUB13-15bn
holders, given that their shares will be diluted. per year of regional budget funds, a new tariff for
“Foreign investors may perceive this step neg- gas transportation and the issuing of perpetual
atively – Gazprom and the state may be accused bonds.
of carrying out the nationalisation of the com- Some of the least gasified areas of Russia are
pany,” he told Russia’s Vedomosti newspaper. in Eastern Siberia and the Far East, where the
“We have seen a few of these proposals before, government is anxious to support economic
but this is the first time in our recollection that a growth by expanding gas access. Russian Prime
share placement has been proposed,” analysts at Minister Mikhail Mishustin on March 15 called
Moscow-based Sova Capital commented. for the development of small-scale LNG supply
The gasification programme aims to increase in the Far East as an alternative to gas pipeline
the percentage of the population with access to infrastructure. He estimated that only 18% of
gas supply to 82.9% by 2030 from 71.4% at the the population in the Far East have access to gas,
start of this year. The aim is to reduce heating which is three times less than the national aver-
and other energy bills and reduce emissions in age. ™

P6 www. NEWSBASE .com Week 12 24•March•2021