Western funds wait for Gazprom's fence to fall

Nov 18, 2003 01:00 AM

Charlemagne Capital, which manages about $ 450 mm in assets, is raising money for an offshore fund to buy domestic Russian shares of Gazprom, the world's largest producer of natural gas.

President Vladimir Putin last month called for lifting a ban on foreigners buying and selling Gazprom's local shares. The restriction has boosted the company's market value based on American depositary receipts to almost double that based on local shares. It also has led some investors to set up offshore funds, which own stakes in Russian shell companies that hold the local shares.
"The company intends to use a number of special purpose vehicles, forward agreements for sale, equity linked notes and other derivative products issued by third parties to gain exposure to local shares of Gazprom," according to the prospectus. "An investment in the company represents an opportunity to obtain exposure to the potential premium."

Gazprom's market value is $ 54 bn based on its ADRs, while local shares value the company at about $ 30 bn. Gazprom's Russian shares rose 0.7 % to 38.38 roubles ($ 1.29), while the ADRs shed 9.6 % to $ 2.31 as some investors sold the stock short on expectations foreign investors will switch out of the ADRs into the fund, according to Jasper Crone, who manages $ 1.3 bn in emerging market equities at F&C Management in London.
An investor "shorts" a stock by selling borrowed shares in the hopes of buying them back at a lower price to return to the lender, pocketing the difference in price.
"Local investors have been shorting Gazprom thinking that ADR holders would be selling to buy this fund," said Crone.

Vostok Nafta Investment, an investment company incorporated in Bermuda and quoted on the Stockholm Stock Exchange, owns 1 % of Gazprom through the purchase of local shares, the company said.
Charlemagne Capital is offering up to 10 mm shares in Bermuda-based Novy Neft at $ 10 a piece. Charlemagne is charging a commission of 50 cents, or 5 %, per share. The asset manager will start the fund if it acquires at least $ 20 mm, the note to investors said. The share sale began Nov. 14. The Charlemagne Capital Russia Fund rose 48 % through the first 10 months of this year.

Source: Moscow Times
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