Russia's Gazprom moves ahead in buying out large subcontractors

Russia's natural gas giant Gazprom will close a deal to buy out 100% of the company's largest subcontractor Stroygazmontazh controlled by stoligarch Arkady Rotenberg for RUB70bn-95bn ($1.1bn-$1.5bn) within next month, according to reports by RBC business portal and Vedomosti daily citing unnamed sources.

As reported by bne IntelliNews, Gazprom also considered buying out another major subcontractor controlled by Rotenberg Gazprom Burenie (Gazprom Drilling), estimated to be worth $0.7bn-$0.9bn.

Assets of sanctioned oligarch Rotenberg are one of the largest beneficiaries of state construction and infrastructure contracts, and two deals with Gazprom could bring a shift in how Kremlin oversees mega-construction projects.

Another asset of Rotenberg StroyProyektHolding has recently teamed up with the state development bank VEB.RF (former Vnesheconombank). In 2018 the bank was entrusted to Igor Shuvalov, a ex-deputy prime minister and trusted Kremlin bureaucrat who revamped the bank into the main hub of state investment spending in the economy.

VEB and Gazprom have in effect been vying for a chance to buy Rotenberg’s assets and in the end the two entities have walked off with one each.

This represents a change in the way mega-projects have been overseen. In the past president Vladimir Putin personally supervised these projects by maintaining close contract with the owners, who are regular guests at his dacha. But selling the companies to VEB and Gazprom, Putin is institutionalising the control of the way state funds are spent on mega-projects – a role that VEB in particularly is supposed to play.

As far as Gazprom's investment case is concerned, commenting on the Stroygazmontazh deal, Sberbank CIB said that "the key factor is that the newly acquired subcontractor would be off Gazprom's balance sheet, as it would be consolidated by an affiliated entity."

The entity to reportedly absorb Rotenberg's assets is Gazstroyprom, a construction company that had RUB310bn in assets and RUB178bn in liabilities as of end-1H19 and generated RUB40bn in revenues and RUB9bn in net income in 1H19. 

Based on Interfax reports, Gazstroyprom was created based on the assets of former major Gazprom subcontractor Stroygazconsulting. The company is already working on Gazprom's projects in Yamal and in East Siberia.

BCS Global Markets on September 26 warned that "technical completion of the earlier appeared information of the deal may indicate impending changes in the policy of capital expenditures."