Wednesday, 02 Apr 2014
Back in April 2007, in the midst of the greatest commodities rally on record, OAO Gazprom’s deputy chief executive officer, Alexander Medvedev, was talking big.
Russia’s natural-gas export monopoly aspired to be the world’s largest company, he said while offering up a prediction: its market value would quadruple to $1 trillion in as little as seven years.
Medvedev was off by $910 billion. Since he made that forecast, no company among the world’s top 5,000 has suffered a bigger collapse in market capitalization than Gazprom, a $154 billion plunge that’s become emblematic of the malaise that has overtaken President Vladimir Putin’s economy. The state-run company has tumbled three straight years in the stock market as it stepped up spending on everything from the Olympic games in Sochi to projects in Siberia.
“Gazprom is a champion in value destruction,” Ian Hague, founding partner of New York-based Firebird Management LLC, which manages $1.3 billion of assets including Russian stocks, said by phone April 2. “It’s not just Gazprom that failed to achieve its goal of increasing market capitalization. It’s Russia who failed. It failed to create an environment where state-owned companies would function as shareholder-owned entities.”
Aliya Samigullina, a Moscow-based spokeswoman for Deputy Prime Minister Arkady Dvorkovich, who is in charge of the energy industry, declined to comment.
Sergei Kupriyanov, a Gazprom spokesman in Moscow, said yesterday that the $1 trillion forecast “was taken out of context” because company officials were projecting a possible valuation if oil prices kept surging. He said the sanctions that the U.S. and Europe imposed on Russia following its takeover of Crimea last month have contributed to the slump in Gazprom’s share price, deepening its discount to global peers.
The stock is down 11 percent this year to $7.68 in New York trading. It rose 0.3 percent yesterday, matching the gain in a Bloomberg index of Russian shares traded in New York.
In an April 6, 2007 interview in Moscow, Medvedev said Gazprom wanted to be the “most capitalized company in the world” and that it would reach a $1 trillion market value within seven to 10 years. He didn’t say the estimate was dependent on the price of oil, which is used as a benchmark reference price for the natural gas that Gazprom sells.
Oil traded at $104.79 a barrel on the London-based ICE Futures Europe exchange yesterday, up from $68.24 the day before Medvedev spoke in 2007.
Russia’s benchmark Micex Index has dropped 19 percent over the past seven years, underperforming the MSCI Emerging Market measure’s 8.2 percent advance and the 10 percent gain in the MSCI World gauge of developed nations. The Micex entered a bear market on March 13 following Putin’s move to annex Crimea from Ukraine, triggering the worst standoff between Russian and the U.S. since the end of the Cold War.
The World Bank said last week that the crisis raises the risk of Russia falling into recession this year after growth slowed to 1.3 percent in 2013, the weakest pace in four years. The economy will probably expand less than 1 percent this year, central bank Chairman Elvira Nabiullina said at a banking conference in Moscow yesterday.