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Gazprom Tumbles in U.S. as Ukraine Payment Deadline Looms

Ukraine Prime Minister Arseniy Yatsenyuk
Arseniy Yatsenyuk, Ukraine's prime minister, has ordered authorities to prepare for a pipeline cut-off. Photographer: Krisztian Bocsi/Bloomberg

OAO Gazprom sank to a one-week low in New York on concern Ukraine won’t pay the Russian producer money it owes for natural gas supplies by today’s deadline, potentially disrupting shipments through the country.

The state-run producer’s American depositary receipts dropped 0.9 percent to $8.35 on June 13, pushing its two-day decline to 2 percent. The stock fell amid speculation that Gazprom may cut off Ukraine if it does not pay the $1.95 billion the company says it owes for previous shipments. A shutdown of the pipelines transiting the former Soviet republic could impede fuel delivery to Europe, from where the company derives more than half its revenue.

“There is a risk,” Mattias Westman, who oversees about $3.6 billion in Russian assets as chief executive officer at Prosperity Capital in London, said by phone on June 13. “Investors are focusing on the outlook for Gazprom’s revenue if there are disruptions of gas supplies to Europe.”

Prosperity owns Gazprom stock and has no immediate plans to sell it, Westman said.

Ukrainian Prime Minister Arseniy Yatsenyuk has ordered authorities to prepare for a cut-off. The European Union gets about 30 percent of its gas supplies from Russia and half of it passes through Ukraine. Shipments to the region were disrupted in 2006 and 2009 when Russia shut its southern neighbor’s tap during price disputes.

‘Too Problematic’

Russia rejected price proposals from Ukraine backed by the EU, according to a statement on the Ukrainian government’s website. The country’s refusal to settle the conflict puts Ukrainian and EU energy security at risk, Yatsenyuk said on June 13 in Kiev.

“Gazprom is really too problematic to consider as part of your Russian portfolio,” Ian Hague, founding partner of New York-based Firebird Management LLC, which manages $1.1 billion of assets including Russian stocks, said in a phone interview on June 13. “Its energy relationship with Ukraine is like a Puccini opera: A lot more emotions than substance.”

Gazprom chief executive officer Alexey Miller is expected in Kiev for the next round of EU-brokered gas talks. Ukraine hasn’t changed its position in talks with Russia, which could turn off fuel supplies today at 10 a.m. Moscow time without a deal.

Cold War

The negotiations are happening as the worst standoff since the Cold War between Russia and the U.S. intensified last week, after pro-Russian militants shot down a transport plane in eastern Ukraine, killing 49 servicemen, and the U.S. accused Russia of sending heavy weapons to the rebels, including old-model tanks and rocket launchers.

The Bloomberg index of the most-traded Russian stocks in the U.S. fell 1.4 percent to 91.47 on June 13, pushing its weekly decline to 0.9 percent. The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, gained 0.5 percent last week to to $26.48. Gazprom ended the week unchanged.

RTS Index futures increased less than 0.1 percent in U.S. hours on June 13. The RTS Volatility Index, which measures expected swings in the stock futures, increased 1.8 percent to 26.97 in U.S. hours on June 13.

United Co. Rusal, a Moscow-based aluminum producer, dropped 1.8 percent to HK$3.74 in Hong Kong trading as of 11:24 a.m. local time.

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