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Doubling of Gazprom Capitalization 'Founded on Myth'

CEP20020806000393 Moscow Nezavisimaya Gazeta in Russian 30 Jul 02 pp 1, 3

[Article by Polina Kanevskaya: "An Investor Trap; the Gazprom capitalization bubble may burst at any moment" -- taken from html version of source provided by ISP]

[FBIS Translated Text]
On the eve of the Gazprom annual shareholdings meeting the company's management joyfully announced that over the previous year the company had increased its capitalization two-fold. This fact is surprising in itself, but it is also surprising because analysts and journalists made virtually no mention of it in their commentaries. After all, strictly speaking there have been no real economic grounds for such an increase in the market price of Gazprom shares. Let us recall what has been happening both within the gas monopoly and around it: at the beginning of last year there were forceful statements of discontent from all sides with the Vyachirev team and in May there was a change of management.

After his appointment the new chairman of the board Aleksey Miller "went underground" for almost four months to study the situation, and September brought the start of a purge of the gas monopoly's management cadres. Then people began to reproach the new team for indecisiveness and an inability to get anything done. The year culminated in scandals involving the removal of assets and rumors about Miller's imminent retirement. Many of Gazprom's partners are now claiming that chaos and internal tension are on the increase within the company. So how could such a growth in capitalization have occurred?

The reply to this question consists of three parts. First, one year ago investors had great faith in Miller's team and it looked as though it would be necessary to dismiss Vyachirev and turn Gazprom into a completely different company -- a company that was open and comprehensible in market terms.   Second, the government promised to break down the barrier between the internal and external markets in the company's shares. As a result investors rushed to buy up "domestic" Gazprom securities, which would increase in value in the event of market liberalization. And third, information exists to the effect that the gas monopoly has itself made titanic efforts to buy up its own shares via front companies in order to raise their value. It is quite possible that Gazprom's own resources were used for this.

Ultimately the company's management was able to present itself very favorably to shareholders on the eve of the annual meeting. Nevertheless, if we can ignore this fact the following conclusion presents itself: the reality is that the two-fold rise in the gas monopoly's capitalization is founded on myth, and this will become increasingly clear with the passing of time.

Investment companies have already found themselves in a complicated situation. There are more people wishing to sell Gazprom shares than there are people rushing to acquire them. The market has now got close to a point beyond which the price of the monopoly's securities will begin to fall. Investment companies will be faced with the task of explaining this to their portfolio clients.

It is worth noting that since Gazprom made changes to its management team only one serious investor -- the German concern Ruhrgas -- has increased its stake in the monopoly's capital. And this company is one of Gazprom's strategic partners and a major purchaser of Russian gas. It is concerned with ensuring reliability of supplies and has never worried about the market price of the shares.

Private investors now find themselves in a ridiculous situation. Eighteen months ago they instigated the publication in the Financial Times, the Wall Street Journal and their Russian subsidiaries of articles claiming that President Putin would only show loyalty to reforms if Vyakhirev was removed and the Gazprom share markets were united. Now, however, nobody on the domestic market believes in either Miller or in liberalization.

The majority of investment analysts now admit that the initial expectations placed on Miller's work in Gazprom were unjustifiably high. And that essentially all the talk about liberalizing the market in the monopoly's shares proved to be a deception. For the next two-three years we can forget all about a unification of the share markets. Nobody is going to make any radical changes in this sphere before the presidential elections -- and all sober-minded analysts and investors, who know the situation from the inside, understand this very well. But the only way to save the financial pyramid of Gazprom capitalization is to attract increasing numbers of new clients. In the West there is still a belief that a new team plus the amalgamation of share markets "is equivalent to" an increase in the exchange rate. So there is only one way out for Gazprom and the investment companies: they have to try and attract as many share purchasers as possible in the West.

At the same time all the serious players on the Russian gas market know that Aleksey Miller is indeed very seriously ill. In fact he is so ill that he may have to leave the company. It is easy to suppose (if the hopes placed on foreign buyers are not justified) that the collapse of the increasing market-value pyramid of Gazprom's shares may coincide with Miller's retirement. At the very least the speculators who make money from gas securities are counting very heavily upon this.


Russia: Gazprom executive says reshuffling in Gazexport due to restructuring

CEP20020806000115 Moscow Interfax in English 0735 GMT 6 Aug 02

[FBIS Transcribed Text]

  MOSCOW. Aug 6 (Interfax) - The dismissal of Oleg Siyenko from the leadership of Gazexport, the foreign trade subsidiary of Gazprom, is related to his policy of restructuring exports, said Stanislav Tsygankov, head of the Gazprom foreign relations department.
  "Gazprom is a gigantic, well-functioning mechanism with a certain system of relations with European partners, among others. Siyenko probably started revising everything that was developed over the years too energetically," he said in an interview with Kommersant daily, published on Tuesday.
  Tsygankov said the Gazexport leadership took certain steps to contact end users in circumvention of traditional partners (Ruhrgas, Gaz de France, Wintershall and ENI).
  "And this by no means meets their interests. Stability is important for Western partners," he said.
  Tsygankov also mentioned the export of liquid hydrocarbons as another serious problem. In his opinion, Siyenko tried "to take this business away from other companies for the benefit of Gazexport, and Gazprom management didn't like that."
  He said that though the reduction of the number of mediators in gas exports would increase Gazprom profits, the company is also interested in cooperation with Western gas companies.
  "For instance, in a consortium with Germany, Gazprom will take part in running the Ukrainian gas transportation system taking Russian gas to Europe. Together with the French Gaz de France and German Ruhrgas Gazprom owns a stake in the Slovak gas transporting company SPP; the consortium acquired 49% of it, and Gazprom has an option to get one-third of the stake in a year and a half, so our interests are mutual," Tsygankov said.
  Speaking of a possible candidate for chief of Gazexport, he said the company "should be led by a political figure who would be well- known to the Western partners of Gazprom."
  "The duties of the head of Gazexport are currently performed by Gazprom deputy board chairman Yuri Komarov, and I don't know whether he will take the post, or someone else," Tsygankov said.
[Description of Source: Moscow Interfax in English -- non-government information agency known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's regions]


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