What a difference six months make. Back in May, this blog highlighted an article from the New York Times that detailed how the Russian natural gas monopoly aspired to be the largest corporation in the world. The company saw its fortunes rising along with steadily escalating oil prices, and it had the political backing of the Kremlin — Gazprom’s chairman, Dmitri Medvedev, had just been sworn in as Russia’s president, succeeding Vladimir Putin, who became prime minister.
Today the Times reports that Gazprom is reeling under $49.5 billion in debt and is seeking a government bailout, having watched its market cap fall 76% since January. The debt was accrued during a buying spree over the last several years as Vladimir Putin sought to effectively renationalize Russia’s oil and gas industries under Gazprom and Rosneft.
As a result, by the time the downturn came, they entered the credit crisis deeply in debt and with a backlog of capital investment needs. (Under Mr. Putin, now the prime minister, Gazprom and Rosneft are so tightly controlled by the Kremlin that the companies are not run by mere government appointees, but directly by government ministers who sit on their boards.) “They were as inebriated with their success as much as some of their investors were,” James R. Fenkner, the chief strategist at Red Star, a Russian-dedicated hedge fund, said of Gazprom’s ambition to become the world’s largest company. “It’s not like they’re going to produce a better mousetrap,” he said. “Their mousetrap is whatever the price of oil is. You can’t improve that.”
Read the article here.