Russian Government May Struggle Over Gazprom Capital
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By
Alexander Kolyandr
MOSCOW—Russian President Vladimir Putin says the government should recapitalize OAO Gazprom to help it pay for infrastructure to ship gas to China.
It is not, however, clear where the government will get the cash from to help cover the projected $55 billion of investment needed to fulfil the $400-billion contract that Gazprom signed with China’s CNPC earlier this month.
The details of the deal haven’t been published in full, but Russia said it will need to spend $55 billion on exploration of gas fields and on the construction of a pipeline to the Chinese border.
With Gazprom’s market capitalization at about $100 billion, it is unlikely that the Russian government will be willing or even able to inject enough equity capital to cover the $55 billion.
The government has pledged to keep control of the company, in which it now owns just above 50%, so it would have to buy at least half of any new equity. Gazprom officials said the project will be partly financed by a $25 billion pre-payment from China, but that would still leave $30 billion to be found, with half of it to be provided by the state.
Such a sum would represent about 3.5% of all budgetary spending this year and, given the Finance Ministry’s tight budgetary policy, it is difficult to see how the budget can bear such a cost.
Mr. Putin hinted, however, at the possibility of using the country’s foreign exchange and gold reserves which, at $466 billion, are the fourth-largest in the world.
“In the modern world, endless increases in gold and foreign exchange reserves hold some risks as well,” he said, adding that investment in the Chinese project will be profitable in the long run.
Analysts are not impressed by the idea of increasing Gazprom’s charter capital, since it may dilute existing shareholders’ stakes.
Moscow-based UralSib said project financing from Chinese companies would have been preferable, since that would have reduced the large capital expenditure that analysts have long criticized Gazprom for.
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