Russian state to get controlling stake in Gazprom

The Russian government secured the agreement of natural gas giant Gazprom on Thursday for a stock purchase that will give the state a controlling stake in the world's largest gas producer.

The eagerly awaited deal, part of a strategy to increase the state's role in the strategic energy sector, is expected to raise the company's market capitalization and boost investor interest as the government has promised in return to lift restrictions on foreigners owning Gazprom stock.

Gazprom said the company's board of directors had fixed a price of 203.5 billion rubles (US$7.13 billion, €5.86 billion) for the 10.74 percent stake. The government approved the same price tag for the deal on Wednesday.

In the wake of the effective nationalization of the Yukos oil giant's core asset, the Gazprom takeover marks another decisive step in the Kremlin's move to reassert authority over Russia's vast and lucrative hydrocarbon resources.

The state currently directly owns some 39 percent of Gazprom, most of which was privatized in the 1990s, and the transaction will lift its shareholding to above 50 percent.

The original plan had been for the government to gain a controlling stake by rolling 100 percent of the state-owned Rosneft oil company into Gazprom. But Rosneft's disputed acquisition of a giant subsidiary of Yukos in December complicated those plans, and last month the government said it would pay cash for the Gazprom shares.

The government plans to finance the purchase with loans, which it would pay down by selling Rosneft stock.

The failure to proceed with the merger between Gazprom and Rosneft _ which would have created a Russian state energy giant rivaling Saudi Arabia's Aramco, highlighted infighting between competing Kremlin factions allied to the two companies.

Roland Nash, head of research with Renaissance Capital brokerage in Moscow, said Gazprom stood to benefit from the deal.

"It's good news it has been accepted," he said, pointing out that Gazprom stock was undervalued because under a so-called "ring-fence," foreigners are not allowed to buy domestically listed shares in the company _ obliging them to purchase shares listed in New York and London at a premium.

"Gazprom is one of the most undervalued assets in the Russia. You bring down the ring fence and that will make it easier for Gazprom to borrow and be able to invest," said Nash.

Valery Nesterov, an analyst with the Troika Dialog investment bank, said that the share liberalization could double or triple Gazprom's market capitalization within several years.

The government introduced the restrictions to prevent a foreign takeover of Gazprom, a major energy supplier to Europe and a huge contributor to the Russian budget.

The prospect of equal access to Gazprom shares would be welcome news for foreign investors, who were spooked by the state's campaign against Yukos and its politically ambitious billionaire founder Mikhail Khodorkovsky.

Once the largest oil producer in Russia, Yukos was broken up to pay a disputed US$28 billion dollar (€23.2 billion) tax bill and Khodorkovsky was sentenced to nine years in jail last month for tax evasion and fraud.

HENRY MEYER, Associated Press Writer