June 29, 2016, 11:33 pm / Business

Gazprom will buy 3.6% of its shares from VEB for 130 billion rubles

The concern will not redeem shares, which will allow it to increase the number of management representatives on the board of directors Alena Makhneva Gazprom intends to buy back its shares from VEB by the end of July. The package is priced at a premium to the market / M. Stulov / Vedomosti

Gazprom . will buy back 3.6% of its shares from VEB by the end of July The transaction amount will be about 130 billion rubles, said Andrey Kruglov, Deputy Chairman of the Board of Gazprom. The company has not yet decided how to dispose of the stake, but will not redeem the shares. “We’ll probably hold it for now,” Kruglov said. – There may be different options: use in certain financial instruments with shares, for example, in the same convertible bonds; maybe a market placement when the situation changes - we were thinking about the Hong Kong Stock Exchange. Options exist, but as long as the financial markets are in this state, there is no need to talk about any other application at the moment. When the sanctions are lifted completely, the markets recover, the price of oil increases - then we’ll see.”

VEB's Supervisory Board approved the sale of the stake - 0.892% of ordinary shares and 2.7% in the form of ADR - on July 23. The deal will help VEB improve liquidity, the Ministry of Economic Development believes. By decision of the supervisory board, the buyer is the Gazprom group; the shares can be purchased by a subsidiary or grandson company with 100% ownership of Gazprom, Kruglov explained. Minister of Economic Development Alexey Ulyukaev said that there are other contenders for the package. “We could not allow such a large volume of shares – 3.6% – to enter the market at once,” Kruglov emphasized.

The transaction amount was calculated based on the average market value of shares over several months, Kruglov explained. The company was valued at $56.6 billion at the current exchange rate, according to Sergei Vakhrameev, portfolio manager at GL Asset Management. On Wednesday, on the London Stock Exchange, Gazprom’s capitalization was $51.1 billion. Thus, the stake is being sold at a premium to the market of about 10%; the company’s minority shareholders could lose about $100 million as a result, Vakhrameev argues.

VEB, which bought receipts for a 2.7% stake in Gazprom at the end of 2010 from the German E.On, when such a package was worth approximately $3.5 billion on the market, will be forced to record a loss. But in a situation where money is urgently needed, this is no longer an argument, Vakhrameev believes. The state corporation's need to repay external debt in 2016 is $3 billion, S&P calculated. The total volume of external debt is $20 billion.

Gazprom

Gas producer
The main shareholders are the Federal Property Management Agency (38.37%), Rosneftegaz (10.97%).
Capitalization – 3.3 trillion rubles.
Revenue (IFRS, 2015) – 6 trillion rubles.
Profit – 787 billion rubles.

Gazprom has money for the buyout - the company had 1.4 trillion rubles on its balance sheet at the end of the year, states Raiffeisenbank analyst Andrey Polishchuk. “As a last resort, they can borrow through a repo mechanism (secured by the purchased package),” says Fitch senior director Maxim Edelson. In 2015 and early 2016, Gazprom attracted enough borrowed funds and does not intend to borrow any more this year, Kruglov said. However, the deal will not significantly affect the concern’s creditworthiness - it has a moderate debt load and a significant liquidity reserve, says Alexander Gryaznov, director of the Corporate Ratings department at S&P Global Ratings. Free cash flow at the end of the year will be positive, EBITDA in dollar terms will be 15–20% lower than in 2015, Kruglov predicts. In 2015, adjusted EBITDA amounted to RUB 1.875 trillion. The Ministry of Energy has not yet received materials on the transaction and cannot evaluate it, a representative of the department said. The Ministry of Finance did not respond to the request. VEB declined to comment.

After the buyout, Gazprom’s share of quasi-treasury shares will increase to 6.65%, UBS estimates. Such a package (based on shareholder turnout at meetings over the past five years) may be enough to elect one representative to the board. It is not clear whether Gazprom is nominating anyone to the council now. 12 people have been nominated to the council for 11 seats, according to the materials for the annual meeting.