Photographer: Andrey Rudakov/Bloomberg

Gazprom Mulls $6 Billion Asset Sales, Dividend Freeze

  • Natural gas giant includes possible asset sales in 2017 budget
  • Plans for 2017-2019 include freezing dividends at 2016 level

Gazprom PJSC, the world’s biggest natural gas producer, is considering asset sales, freezing dividends and increasing its borrowing as export earnings wane, according to its three-year budget.

The state-controlled company aims to raise 350 billion rubles (around $6 billion) from asset sales this year, while borrowing may climb to 288 billion rubles and more than double from that level next year, a copy of the document obtained by Bloomberg News show. Dividend payments are forecast at the 2016 level through 2019, according to the plan, approved by the board in December.

Despite a rebound in crude oil, which dictates the price for most of Gazprom’s export contracts, the proposed budget shows the company remains under financial pressure as it tries to finance new pipelines to Europe and Asia. Gazprom needs to increase borrowing to “ensure liquidity and cover obligations” at oil prices close to current levels, according to the budget.

GAZPROM’S KEY BUDGET TARGETS

2017 asset sales2Q3Q4Q
Proceeds, billion rubles122.5157.570
2016-2019 market outlook, budgets2016*201720182019
Urals crude, $/bbl40485255
Ruble/USD exchange rate68.963.362.161.3
Average gas price in EU, Turkey, $/1,000cm169166-168175180
Investments, billion rubles854911850850
Dividend payments, billion rubles**186.8186.8186.8186.8
External borrowings, billion rubles188288705641
     incl. long-term loans87160396391
     incl. bonds101128308250

* 2016 plan for parent company set in Oct.
** Payments implying 7.89 rubles/share

No final decision has been made on asset sales and there is no set time frame, two people with knowledge of the issue said, asking not to be identified because the information isn’t public. Gazprom’s press service declined to comment. The stock lost as much as 1.7 percent in Moscow to the lowest intraday level since Nov. 18.

Management plans to sell Gazprom’s stake in Gascade Gastransport GmbH, which operates more than 2,400 kilometers of gas pipelines across Germany, possibly this year, Interfax reported, citing unidentified people. There are several potential bidders, the newswire said. The Moscow-based exporter acquired 49.98 percent in the grid through an asset swap with Germany’s BASF SE in 2015.

Gazprom hasn’t sold such a large amount of assets since 2010. Back then, it disposed of 9.4 percent of its largest domestic competitor, Novatek PJSC, for 57.5 billion rubles (about $1.9 billion at the time), classifying its remaining 9.9 percent stake as an asset for sale. The shares, which currently have a market value of about 215 billion rubles based on Moscow trading, could be a candidate, said Raiffeisen Centrobank AG analyst Andrey Polischuk.

Gazprom is considering various options for raising cash using the Novatek stake, including a possible sale, the people said. The energy giant may earmark some Novatek stock for the sale of convertible bonds, according to one of the people and another person who asked not to be named. No decisions have been made, all three said.

Novatek has offered to buy four gas fields from Gazprom in Russia’s north, which the state-run company is now assessing. The fields could be valued at about $1 billion, RBC news service reported last month.

Another asset, which deputy chief Andrey Kruglov said last year could be sold or used for convertible bonds, is 6.6 percent of Gazprom itself, a stake that has a market value of about 230 billion rubles now. The company bought half of those shares last year to help the government bail out a state lender.

Gazprom usually revises its budgets, which don’t include its oil arm Gazprom Neft PJSC, as well as utilities in Russia and Europe-based gas traders, twice a year. Last year, it beat its target in European exports by 10 percent, while failing to reach agreement on shipments with once a key consumer, Ukraine, amid arbitration proceedings.


OTHER BUDGET ESTIMATES


2016*201720182019
Gas output, bcm408427430434
Total gas sales, bcm**408402403404
Exports outside FSU166163163163
FSU***35383838
   incl. Naftogaz, east Ukraine5666
Russia207201202203
Gas purchases in Russia, bcm32252525
Gas purchases in Central Asia, bcm14151514
Average price of Central Asian gas, $/1,000 cm****139147143146
Gas extraction tax, rubles/1,000 cm797991869926

* 2016 plan for parent company set in Oct.
** Excluding gas into underground storage and fuel used by pipeline units
*** Shipments from Russia outside former Soviet Union, which is mainly Turkey and EU bar Baltic states; 2016 actual exports were record 179 bcm
**** Gas purchased from Gazprom Schweiz AG unit, excl. swaps with Kazakhstan

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