Moscow: Russian state banks will help Gazprom raise over $4 billion to buy back a stake in its oil arm from Italy’s Eni to avoid the asset ending up in foreign hands, industry sources said on Wednesday.
The deal, expected in early April, the sources said, would help Eni allay investor fears it has enough cash to continue paying its dividend and advance the Kremlin’s strategy of bringing key resources back under state control.
“In the eyes of the Kremlin, Gazprom Neft is a ‘strategic asset´ and therefore foreigners owning such assets should expect to have the thumb screws put on them to reduce their equity levels,” analysts from Bernstein said in a note.
Eni, the biggest Western buyer of Russian gas, acquired a 20% stake in Gazprom Neft and some gas assets at a state auction of bankrupt oil firm YUKOS in April 2007 and immediately agreed a buyback option within two years with Gazprom.
Analysts believed Russia devised the arrangement to secure the assets for state-controlled Gazprom even though it was deemed politically difficult for Gazprom to bid in the auction, which Yukos shareholders dismissed as a sham.
Eni’s shares rose 3.6% as investors had feared Gazprom could fail to meet or would ask to extend the deadline for the buyback, citing a lack of refinancing options and the fact that Gazprom Neft’s value has tumbled since it took the call option.
Gazprom Neft’s shares were up 9% after rising as high as 27% in early trade on hopes Gazprom would offer a generous buyout to minority shareholders of Gazprom Neft.
The deal would mark the first major refinancing help provided by Russian state banks since the Kremlin abruptly suspended direct industry bailouts in February.
Eni could become the outright owner of the assets if Gazprom misses the deadline.
Gazprom must either exercise the buyback before April 9 or agree an extension to the deadline.
It can buy 20% of Gazprom Neft from Eni and 51% in a joint venture operating Siberian gas assets and belonging to Eni and its partner, Enel.
“It’s going to be part of (Italian Prime Minister Silvio) Berlusconi’s visit to Moscow,” one of the sources said on Wednesday. Berlusconi is expected to visit Moscow on April 6-7.
However, the sources said the two sides had yet to reach agreement on the final price. Gazprom and Eni declined official comment.
Eni and its partner at the auction, Italian utility Enel, paid a total of $5.8 billion for the assets and agreed to resell the Gazprom Neft stake for around $4 billion.
A fifth of Gazprom Neft is worth around $2.2 billion at today’s market prices.
Russia is one of the few countries with very large oil and gas reserves where international oil companies can invest and other companies have also entered into unconventional deals with Russian state companies to secure access to Russian fields.
Gazprom currently owns 75% of Gazprom Neft and many analysts had expected Gazprom to ask Eni to extend the deadline for the buyback as the gas monopoly faces record debt repayments this year amid a steep decline in gas prices.
Demand for gas in Europe and Russia has also tumbled amid the economic downturn and Gazprom is expected to post a net loss, the first in a decade, in the fourth quarter when gas hit their lows catching up with oil prices.
“Gazprom needs to save as much money as it can, given that its investment programme will, in our view, significantly exceed its operating cash flow next year,” Troika Dialog brokerage said in a note, adding the buyback was negative news for Gazprom.