Daily analyst comments

Gazprom plans to merge the shares of its generation companies into a single legal entity, Gas and Energy Company (GEC), reports Interfax with reference to a source familiar with the gas concern’s plans. GEC was established to participate in the deal to merge Gazprom and SUEK’s energy assets on behalf of Gazprom; however, the transaction was never concluded. GEC currently owns 5.4% of OGK-5 and 5% of TGK-5 which Gazprom received in the first stage of the UES restructuring. In the first phase of GEC asset consolidation, Gazprom will transfer its share packages in Mosenergo and TGK-1 to the new company’s balance. In future, Gazprom may also transfer its stakes in OGK-2 and OGK-6 to GEC. All share packages will be controlling.

The transfer of shares to GEC’s balance will oblige the company to present buyout offers to the gencos’ minority shareholders. However, offers are not likely to be made soon. TGK-1 may become the first company to receive an offer: Gazprom will be ready to make its proposals to the genco’s minority holders in mid-2009. Other gencos will receive offers at a later date.

We are generally upbeat on Gazprom’s plans to create a single company that will manage all the generation assets of the gas giant. Firstly, GEC will be able to improve the quality of the companies’ governance by developing single regulations and standards for its subsidiary gencos. Secondly, the company will serve as a single center of responsibility for the development and implementation of the gencos’ development strategies. Thirdly, this should boost the genco’s financial mobility and enable them to attract cheaper loans, including the ability to borrow against security pledges, which is especially topical amid the current lack of liquidity.