(Bloomberg) -- Prosperity Capital Management, the largest Russia-focused equity investor, has invested $120 million in OAO Gazprom, buying shares in the gas export monopoly for the first time in 13 years as it trades near record lows.
Prosperity has invested 10 percent of its $1.2 billion Russian Prosperity Fund in Gazprom in the last few months, Mattias Westman, Prosperity’s chief executive officer, said in an interview Nov. 19. Gazprom, which has a 15 percent weighting in the 30-stock Micex Index, is trading at 3.9 times 2011 profit estimates, compared with a record-low ratio of 2.1 in October 2008, according to Bloomberg data. The Hong Kong-traded shares of PetroChina Co., China’s biggest energy company, are valued at 12 times profit estimates, while OAO Rosneft, Russia’s largest oil producer, is valued at 7 times profits.
“These gigantic hydrocarbon producers are not very pretty, but the potential is substantial when you get them this cheap,” said Westman, who helps manage $4.5 billion at Prosperity.
The Russian Prosperity Fund is the second-best performing hedge fund globally this year, returning 39 percent through Oct. 29, after adding 195 percent last year, data compiled by Bloomberg show. The company’s Quest fund is ranked second among midsize funds with a 47 percent return, the data show.
Westman said he doesn’t agree with some investors that Gazprom will be hurt as U.S. gas production from shale formations increases. “Everyone hates the stock,” he said. “They think it will be destroyed by shale, which we don’t subscribe to.”
Speaking at the Bloomberg Businessweek European Leadership Forum in London on Nov. 23, Westman said that “little by little” Gazprom is improving the way it is run. Addressing the same conference, William Browder, chief executive officer of Hermitage Capital Management, Russia’s largest foreign investor before he was barred from entering the country in 2005, called the company a “cash-cow for all the criminality that goes on in Russia.”
Gazprom’s shares slid 1.2 percent to 167.71 rubles by the 6:45 p.m. close in Moscow, their weakest level in almost a month.
Russia is the world’s most corrupt major economy, according to Berlin-based Transparency International’s 2010 Corruption Perceptions Index released Oct. 26. It ranked 154th among 178 countries, alongside Tajikistan and Kenya.
Prosperity’s biggest holding by value in the Russian Prosperity Fund is OAO Bashneft, the oil producer controlled since April 2009 by billionaire Vladimir Yevtushenkov’s AFK Sistema. Prosperity has received double what it paid for the stake in dividends, Westman said without providing further details.
“Change matters much more than if the price of oil goes up or down,” said Westman. “Bashneft previously had a very inefficient ownership affiliated with the local administration and was not trying to modernize in any way. Sistema comes in and implements all this modern technology leading to a fivefold increase in profits.”