What a difference a year makes. Indeed, Russian oil giant Gazprom has seen its fortunes free fall in 2008. The company, which was once on the verge of becoming the largest company in the world, is now looking for the Russian government to step in and offer up some bailout money to keep the company afloat.The Russian natural gas monopoly has seen its market cap shrink by a remarkable 76% since the start of 2008, dropping it to 35th place in overall market cap. Now that the company has hit such hard times, it is looking towards Moscow for a little help, asking for a reported $5.5 billion.
The recent sharp drop in oil prices is largely responsible for the company's hard times, but that is not the whole story. Gazprom, while still enjoying high oil prices, displayed poor judgment in how it used its new found power and money. Instead of taking the profits from the past five years of record prices for natural gas and investing them in new exploration and drilling, they were used by, at the time Russian President, Vladimir Putin to regain public control over the oil fields, and other forms of private industry.
The result ... a company that now finds itself in debt to the tune of $49.5 billion. While this is nothing compared to the debt America runs, it is pretty massive compared to other emerging markets like India, China and Brazil, which have a combined total public and private sector debt of $56 billion coming due in 2009.
Despite clear signs that the company is suffering from inefficiency due to renationalisation, the company defends itself and blames its recent downturn in fortune to the Russian stock exchange.
According to Aleksandr I. Medvedev, a deputy chief executive of Gazprom, the recent steep decline in Gazprom's stock price is due to the lack of long term money that investors have to place in the highly volatile Russian stock exchange. He went on to say that the company's share price does not equal the company's real value, blaming the current crisis that started on Wall Street for being the catalyst to the company's drop in share price.
Earlier this year, Russia announced that it was going to be setting up a total corporate bailout fund of $50 billion, and that around $9 billion of that will be designated for oil and gas companies.
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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Reader Comments (Page 1 of 1)
12-30-2008 @ 1:06PM
BHarrison said...
It strikes me that this global economic disaster would fit nicely into some StarTrek episode . . . finding a world in which the entire global economic system feel into disarray due to the felonious manipulations by the "leaders" of the economic financial institutions, leaving the order of the world in disarray.
The "guilty parties", Congress and the leaders of the FIs and corporations, are still in control, trying to hang onto their positions, power and wealth; but nothing is working effectively to resolve the problems.
The guilty leaders are incapable of instilling INTEGRITY into the system because that will undermine their positions and wealth . . . so, the quandary continues on. What will it take to break the log jamb on all of this? Will there have to be rioting in the streets to finally bring down the "leaders" of the "houses of cards" which have already collapsed?
It is quite a predicament for all of us, isn't it?
12-30-2008 @ 2:31PM
Iridium said...
Oh no you were going to become the world's largest corporation on the back of a artificial bogus price of the most important commodity in the world. Now that the price has gone down to more realistic levels, still far higher than it should be, you aren't making the insane profits you were before.
Newsflash, oil is still priced very high and billion if profit is still easily made. Go f yourself. If you went $50 billion in debt as a corporation because you spent far too much money betting on oil staying at $150 a barrel then you deserve to go out of business.