A Little Novatek Between Friends

Businessweek talks to two investors today about the risks of investing in Russia stocks, with one of them suggesting that, despite the benefits that may be had, corporate governance issues make the investments too risky.  He focuses in particular on the recent string of Novatek share sales. 
Investors have little confidence in the company’s management, Colliander says, because officials at Russia’s Energy Ministry use the company “for their own purposes.” Gazprom sold a 9.4 percent stake in Novatek, Russia’s second-largest gas producer, for $1 billion less than its market price last month. “Why in hell would you do that?” 
Well, Yulia Latynina was wondering just the same thing in her column earlier this week.  She writes that, not only were Novatek’s shares initially sold at a low price, but that the ensuing deals under which the same shares traded hands are indicative of careful and ‘murky‘ planning between powerful friends.

The Novatek agreement was signed on March 3 in Novo-Ogaryovo with Putin personally blessing the deal. According to official reports, Total will acquire 12 percent of Novatek, the second-largest gas producer in Russia, from its CEO and largest shareholder, Leonid Mikhelson, and co-owner Gennady Timchenko.

The huge figures involved in this deal are especially noteworthy. In fact, on Dec. 20, Gazprom sold Gazprombank a 9.4 percent stake in Novatek for 57.5 billion rubles ($2 billion). Only one day earlier, that stake was valued on the MICEX at 87 billion rubles, and it is now worth 101.3 billion rubles. The very next day, Dec. 21, Gazprombank resold those shares to Novatek. Now, with Putin looking on, Timchenko and Mikhelson resold several major share packets to Total for 30 percent more money than Gazprom received for the same shares.

Gazprom is run by Putin’s friend Alexei Miller, Gazprombank is owned by Putin’s friend Yury Kovalchuk, and yet another friend of Putin’s, Timchenko, is co-owner of Novatek. What we have is a complex, multistaged financial transaction in which individuals and companies with close ties to Putin flip billions of dollars worth of stocks and securities in murky, under-the-table schemes.

Latynina’s full piece is here.