Affiliated Party Transactions Examples at Gazprom
-
Upload
holmes-soto -
Category
Documents
-
view
17 -
download
1
description
Transcript of Affiliated Party Transactions Examples at Gazprom
![Page 1: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/1.jpg)
1
HERMITAGE CAPITAL MANAGEMENT
Affiliated Party TransactionsExamples at Gazprom
William BrowderChief Executive Officer
Hermitage Capital ManagementNovember 12, 2004
![Page 2: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/2.jpg)
2
HERMITAGE CAPITAL MANAGEMENT
Construction write-offs had materially hurt the profitability of Gazprom
Source: PWC Audit of Gazprom 1998-2000
$4,659 m
$946 m
increase by 19%
increase by 73%
($4,151) m
(6,000)
(4,000)
(2,000)
-
2,000
4,000
6,000
8,000
1998 1999 2000
mln USD
Impairment charge for Assetsunder construction, mln USD
EBIT, mln USDdecrease by 25%
Loss
Construction write-off
($1,052) m
ProfitProfit
Construction write-off ($694) m
Construction write-off ($889) m
Stroytransgaz Example
![Page 3: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/3.jpg)
3
HERMITAGE CAPITAL MANAGEMENT
45% 47% 49%
0%
20%
40%
60%
80%
100%
120%
1998 1999 2000
Stroytransgaz Example
A company called Stroytransgaz had been contracted to do largest share of Gazprom construction
Source: PWC Audit of Gazprom 1998-2000, Stroytransgaz prospectus
Stroytransgaz
![Page 4: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/4.jpg)
4
HERMITAGE CAPITAL MANAGEMENT
It appeared that there was a strong correlation between Gazprom write-downs and services provided by Stroytransgaz
$1065.9 m
$676.3 m
$842.0 m
$1052 m
$694 m
$889 m
0
200
400
600
800
1,000
1,200
1998 1999 2000
mln USD
Stroytransgas services, mln USD
Impairment charge for Assets under construction, mln USD
Source: PWC Audit of Gazprom 1998-2000, Stroytransgaz prospectus
Stroytransgaz Example
![Page 5: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/5.jpg)
5
HERMITAGE CAPITAL MANAGEMENT
Furthermore, in 1995 Stroytransgaz had been basically given 4.83% of Gazprom
Source: Gazprom and Stroytransgaz securities reports
G azp ro m S tro y tran s ga z4 .8 3 % o f G azpro m
$ 2 .5 m il l io n
Stroytransgaz Example
![Page 6: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/6.jpg)
6
HERMITAGE CAPITAL MANAGEMENT
$191 mln
$1,087 mlnLoss of
$1085 m
$2.5 mln0
200
400
600
800
1,000
1,200
Price paid byStroytransgaz
Market value of theblock in 1995
At Market Price(May 14, 2002)
Gazprom loss
Million USD
Source: Gazprom and Stroytransgaz securities market reports, Plan of Privatization, Reuters, Vedomosti
Valuation of 4.83% Gazprom shares block “sold” to
Stroytransgaz
Stroytransgaz ExampleThat gift transferred huge value away from Gazprom
![Page 7: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/7.jpg)
7
HERMITAGE CAPITAL MANAGEMENT
57.04% of Stroytransgaz
V ic to r C herno m yrd in( f o r m er C h air m an o f th e Bo ardan d f o r m er C E O o f G azp ro m )
An d r e iC h er n o m y r d in
Vita lyC h er n o m y r d in
s o ns
5.96% ofS troytra ns ga z
5 .96% ofS troytra ns ga z
R em V yakhirev( f o r m er C h air m an o f th e Bo ard
an d C E O o f G azp ro m )
T aty an aD ed ik o v a
6.40% ofS troytra ns ga z
daughte r
A rngo lt B ekker( M em b er o f th e Bo ard o f
G azp ro m )
V.Bek k erN . Bek k er
c hildre n
6.99% ofS troytra ns ga z
2 .65% ofS troytra ns ga z
E .Bek k er
2.68% ofS troytra ns ga z
V yac hes lav S herem et( M em b er o f th e Bo ard an d f ir s t
d ep u ty o f C E O o f G azp ro m )
Ko rm an o v s k i A.
6.40% ofS troytra ns ga z
kin
20.00% ofS troytra ns ga z
Through the affiliated party disclosure it was discovered who truly owned Stroytransgaz
Source: Gazprom and Stroytransgaz securities reports
Stroytransgaz Example
![Page 8: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/8.jpg)
8
HERMITAGE CAPITAL MANAGEMENT
As a result of the public pressure, 4.83% of its shares were returned to Gazprom
Source: Interfax, November 27, 2002, Vedomosti, March 12, 2003, Preliminary Offering Circular February 14, 2003, Loan Participation Notes
G a zp rom
S tro ytra n s g a s
J o in t V e n tu r e
V e k s e ls w o rth$ 1 4 4 m ln .
4 .8 3 % o fG a zp ro m 's s h a re s
G a zp rom
S tro ytra n s g a s
J o in t V e n tu r e
4 .8 3 % o fG a zp ro m 's s h a re s
V e k s e ls w o rth$ 1 4 4 m ln .
S ta g e 1 : S ett in g u p J V S ta g e 2 : L iq u id a tio n o f J V
Stroytransgaz Example
![Page 9: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/9.jpg)
9
HERMITAGE CAPITAL MANAGEMENT
Stroytransgaz has also seen its share in Gazprom’s construction budget decline
Source: Gazprom disclosure
Stroytransgaz Example
Share of Stroytransgas in Gazprom's construction business (1998-2003, %)
21%
26%
51%49%
47%45%
0%
10%
20%
30%
40%
50%
60%
1998 1999 2000 2001 2002 2003
![Page 10: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/10.jpg)
10
HERMITAGE CAPITAL MANAGEMENT
Source: Hermitage Analysis, Federal Securities Market Commission
After the 1998 crisis, Gazprom decided to acquire gas retailers (about 80) by swapping their debt for equity and creating a holding company RegiongasHolding
But surprisingly
Gazprom only received 25% of the
new holding company
G a zp ro m
M e zhre gio nga s
C u sto m ers
1 0 0 %
B ry a ns o b lga s
K a lu ga o b lga s
T y u m e no b lga s. . .
G a s re ta ils a le s
R e g io n g a s H o ld in g
2 5 %
3 o u ts id e c o m p a nie s
7 5 %
80 retailers
G a zp ro m
M e zhre gio nga s
C u sto m ers
1 0 0 %
G asw ho les alers
B ry a ns o b lga s
K a lu ga o b lga s
T y u m e no b lga s. . .
G a s re ta ils a le s
RegiongasHolding Example
![Page 11: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/11.jpg)
11
HERMITAGE CAPITAL MANAGEMENT
Source: Hermitage Analysis, Federal Securities Market Commission
Instead of Gazprom owing RegiongasHolding, 75% of it ended up in the hands of former management of Gazprom and Mezhregiongaz
Regiongas Holding shareholders
structure
Mezholimpinvest20%
Gazspetztehnologia25%
Resurs-MRG30%
Gazprom25%
P ro te k -M G
V ita ly C h e rn o m yrd in ,s o n o f fo rm e r C ha irm a n
o f G a zp ro m
1 0 0 %
A gro him te x
Q u o ru m -N D e lta
5 0 % 5 0 %
V a le n tin N ik is h in ,C E Oo f M e zhre gio nga z a nd
his s o n
1 0 0 % 4 8 %
4 5 %4 5 %
RegiongasHolding Example
![Page 12: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/12.jpg)
12
HERMITAGE CAPITAL MANAGEMENT
Regiongasholding Ownership Evolution
Gazprom; 25%
Gazprom; 55%
Mezholimpinvest 20%
Resupr-MRG; 30%
Gazspetztehnologia, 25%
Others45%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001 2002
As a result of public pressure, Gazprom recovered control over RegiongasHolding
Source: Federal Securities Market Commission, Regiongasholding 4Q 2002 securities market report
RegiongasHolding Example
![Page 13: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/13.jpg)
13
HERMITAGE CAPITAL MANAGEMENT
First dilutive issue took place in July 1997.
Gazprom40%
Gazprom45%
Proekt (SBNG management)15%
Proekt (SBNG management) 15%
LogoVaz20%
Local administrations 8%
LogoVAZ 20%
ZAO "Schit" 10%
"Potential LO" 6%
Local Administrations 20%
0
1,000
2,000
3,000
4,000
5,000
6,000
May-95 Jul-97
150% capitalincrease
Placement price valued Sibneftegaz at $1,285 K
2,000 shares
5,000 shares
Gazprom underpaid$65 K needed to keep
its share intact
3,000 new
shares$777 Kworth
Sibneftegaz Example
![Page 14: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/14.jpg)
14
HERMITAGE CAPITAL MANAGEMENT
Second issue bring Gazprom down to only 21% to the benefit of two Itera affiliated companies (38%) and Ingeneeringoil (5%) owned by Vyakhirev kins.
Gazprom45%
Gazprom21%
Proekt (SBNG management) 15%
Proekt (SBNG management)15%
LogoVaz 5%
LogoVAZ 20%
Local administrations 2%
ZAO "Schit" 10%
"Potential LO" 1.8%
Lanka Promkomplekt 18%
Linko-Optim 20%
Puringeneeringoil 5% OOO Krifin 2%
0
3,000
6,000
9,000
12,000
15,000
18,000
21,000
Jul-97 Feb-99
"Potential LO" 7%ZAO "Schit" 10%
Local Administrations 8%
20,000 shares
5,000 shares
300% capitalincrease
Gazprom underpaid$333 K needed to keep
its share intact
Placement price valued Sibneftegaz at $1,751 K
15,000 new
shares$1314 Kworth
Sibneftegaz Example
![Page 15: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/15.jpg)
15
HERMITAGE CAPITAL MANAGEMENT
Sibneftegaz intrinsic value is between $78 mln and $627 mln based on 1.57 BOE of hydrocarbon reserves
Sibneftegaz valuation
$1.8 mln
$78.4 mln
$627.2 mln
$0
$100
$200
$300
$400
$500
$600
$700
Last share issue (Feb-99) Based on Gazprom $/boevaluation
Based on average Russian $/boevaluation
Mill
ion
US
D
Sibneftegaz Example
![Page 16: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/16.jpg)
16
HERMITAGE CAPITAL MANAGEMENT
Gazprom management related parties benefited from Gazprom dilution
20%
9%
15%
5%10%
10%
13%
18%
Se r g e iSo c hne v
Yur iR yazano v
O O O"Vis ta-K o ral l"
O O O "K r if in"
O O O "Inte rgazs ib"
O O O "L inko -o ptim "
1 0 0 % 1 0 0 %
1 0 % 9 0 %
1 0 0 %
O O O "L anka-P ro m c o m ple c t"
7 5 %
Vi c to r B r yans ki hD e pa rtm e nt of
S tra te gic D e ve lopm e nt ofG azp ro m
L e s yaSo ko l o va
1 2 .5 %
1 2 .5 %
20%
1 8 %
G a zp ro m2 1 %
Z AO Ins uranc eC o m pany "Sc hit"
1 0 %
Z AOP ure nge ne e r ingo il
G e nady Vyakhi r e vbro the r o f R e m Vyakhi r e v
G azpr o m C E O
Andr e y Vyakhi r e vne phe w o f R e m Vyakhi r e v
G azpr o m C E O
Z AO Firm a P ro e kt
O the rs
1 5 %
7 0 % 3 0 %
V ya c he s la v K uzne tzo vH e ad o f Inte rnal Audit
D e par tm e nt o f G azpr o m
4 2 %
N atal i eKuzne tzo va
M r .Kuzne tzo vs po us e
4 7 %
S ib ne fte ga z
5%
1 3 %
Sibneftegaz Example
![Page 17: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/17.jpg)
17
HERMITAGE CAPITAL MANAGEMENT
May '01: Putin sacks Rem Vyakhirev as CEO of Gazprom.
Source: Bloomberg
Gazprom Share Price (US$)
Sibneftegaz ExampleIn light of these and other discoveries, president Putin fired Gazprom’s CEO Rem Vyakhirev
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01
![Page 18: Affiliated Party Transactions Examples at Gazprom](https://reader035.fdocuments.us/reader035/viewer/2022071808/5681313d550346895d97b54d/html5/thumbnails/18.jpg)
18
HERMITAGE CAPITAL MANAGEMENT
Disclaimer
The information is based on data obtained from publicly available sources, which have not been verified by Hermitage Capital Management Limited, or any of its respective associates or affiliates. As a result of the difficulty in obtaining reliable data in Russia, we do not represent this information to be accurate and complete and we do not accept any responsibility for the reasonableness of any conclusions based upon such information.