Tracking Gazprom, Russia’s biggest company, on its US investor offensive
The recent New York leg of Gazprom’s investor day was sparsely attended. Mounds of appetizers went uneaten at a lunch reception 40 floors above lower Manhattan. Sergei Kupriyanov, the Russian gas giant’s press secretary (doubling as IR point man for the roadshow), was besieged by no one except a lone family-office representative and an energy-policy researcher from Columbia University.
But Kupriyanov takes the long view. ‘Nobody doubts that for the next 10, 15 or 20 years gas will be a commodity in great demand,’ he maintains.
Moscow-based Gazprom, which controls one third of the world’s known gas reserves, launched the investor-day tradition in 2008. The Russian state controls a bare majority in the company, 50.002 percent of shares. Private investors own the rest, including 21 percent traded on non-Russian exchanges as American depository receipts (ADRs). Last year’s meeting had a celebratory air: energy prices were at record highs and Gazprom had become one of the world’s top 10 corporations by market capitalization.
This year Kupriyanov and Gazprom’s executive front men – finance director Andrey Kruglov and export division chief Alexander Medvedev – had to put a brave face on a very different situation. Gazprom shares have lost two thirds of their value since last July and production has dropped by more than 10 percent.
The company took a fresh PR bashing in winter as it cut supplies in a recurring dispute with Ukraine, its main transit country to customers in Europe. And then long-time IR head Dmitri Zhdanovich defected to state financial powerhouse Sberbank, leaving Kupriyanov to improvise while the department, as he puts it, restructures.
Charm offensive
Gazprom’s charm strategy in this tough situation is to admit it is in a short-term muddle – though not of its own making – while stressing its reliability as a long-term play.
‘The most complicated question from investors, which we can’t answer yet, is how our budget and production will need to be corrected for this year,’ Kupriyanov says. Prices on the European exports that bring in a quarter of Gazprom’s revenue are predictable thanks to long-term ‘take or pay’ contracts, he adds.
But revenue within Russia and the former Soviet Union is subject to government pricing controls and the depreciation of the ruble, which has lost half its value against the dollar since the global economic crisis hit Russia.
To accentuate the positive, Gazprom is redoubling efforts to show off prize projects to investors and journalists. In February the company hauled a brave group to Sakhalin Island, unveiling a new liquefied natural gas plant aimed at making Gazprom an energy player in east Asia.
A future excursion is scheduled for the Arctic, where the company will unveil a railway bridge critical to supplying its future gas project on the Yamal Peninsula. ‘We want to show people how our company breathes,’ Kupriyanov says.
But many investors are less curious about Gazprom’s physical infrastructure than the financial complexities of a holding that reported $25 bn in profit on $70 bn in sales for the first nine months of 2008. The company, formed from Soviet assets after the fall of communism, has had a checkered governance history. Huge swathes of gas reserves disappeared in the 1990s, ending up under the control of a new entity called Itera. Most of Gazprom’s downstream chemical facilities were spun off into a firm called Sibur.
Gazprom has clawed back most of its lost assets under current CEO Alexey Miller. But investors continued to question the company’s financial probity. The annual Gazprom report published by Hermitage Capital, a fund headed by US-born investor Bill Browder, became a much-anticipated event in Moscow financial circles, documenting billions in alleged waste on practices such as overpriced contracts with related parties. At least it was, until Browder had to leave Russia when he was denied a reentry visa in 2005.
Gazprom eventually replied in detail to Hermitage’s critique, arguing that its higher-than-average pipeline costs reflected difficult Russian terrain, and investors piled into its shares as energy markets soared from 2006 to 2008. But Kupriyanov admits that suspicions remain. ‘I will consider our job done when investors at meetings stop asking systemic questions like, What is being done to make the company more transparent?, and ask only about what is happening at the company, the current numbers, and so on,’ he says.
New challenges
Meanwhile, the IR profession itself evolves in post-communist Russia, where practitioners trained on-the-job – like Kupriyanov – struggle with their first prolonged bout of crisis management.
At 34, Kupriyanov is old enough to be senior in his still-young profession. He studied economics at the prestigious Moscow Institute of Physics and Technology, did a stint at the Ministry of Economics, then spent seven years as a manager at a start-up trying to pioneer financial information for Russia’s volatile markets.
One of his pet peeves is investors and others seeing Gazprom as an arm of the Russian state. ‘What frustrates me is people who believe the stereotype that Gazprom is the energy weapon of the Kremlin,’ he says. Even so, he understands that perceptions of his company and of Russia writ large are inextricably intertwined, and that confidence cannot revive in one without the other.
