Affiliated Party Transactions

1
Affiliated Party Transactions Examples at Gazprom

William Browder Chief Executive Officer Hermitage
Capital Management November 12, 2004
2
Stroytransgaz Example
Construction write-offs had materially hurt the
profitability of Gazprom
Source PWC Audit of Gazprom 1998-2000
3
Stroytransgaz Example
A company called Stroytransgaz had been
contracted to do largest share of Gazprom
construction
Stroytransgaz
Source PWC Audit of Gazprom 1998-2000,
Stroytransgaz prospectus
4
Stroytransgaz Example
It appeared that there was a strong correlation
between Gazprom write-downs and services provided
by Stroytransgaz
Source PWC Audit of Gazprom 1998-2000,
Stroytransgaz prospectus
5
Stroytransgaz Example

• Furthermore, in 1995 Stroytransgaz had been
  basically given 4.83 of Gazprom

Source Gazprom and Stroytransgaz securities
reports
6
Stroytransgaz Example
That gift transferred huge value away from Gazprom
Valuation of 4.83 Gazprom shares block sold
to Stroytransgaz

• Source Gazprom and Stroytransgaz securities
  market reports, Plan of Privatization, Reuters,
  Vedomosti

7
Stroytransgaz Example
Through the affiliated party disclosure it was
discovered who truly owned Stroytransgaz
57.04 of Stroytransgaz
Source Gazprom and Stroytransgaz securities
reports
8
Stroytransgaz Example
As a result of the public pressure, 4.83 of its
shares were returned to Gazprom
Source Interfax, November 27, 2002, Vedomosti,
March 12, 2003, Preliminary Offering Circular
February 14, 2003, Loan Participation Notes
9
Stroytransgaz Example
Stroytransgaz has also seen its share in
Gazproms construction budget decline
Source Gazprom disclosure
10
RegiongasHolding Example
After the 1998 crisis, Gazprom decided to acquire
gas retailers (about 80) by swapping their debt
for equity and creating a holding company
RegiongasHolding
But surprisingly Gazprom only received 25 of
the new holding company
80 retailers
Source Hermitage Analysis, Federal Securities
Market Commission
11
RegiongasHolding Example
Instead of Gazprom owing RegiongasHolding, 75 of
it ended up in the hands of former management of
Gazprom and Mezhregiongaz
Regiongas Holding shareholders structure
Source Hermitage Analysis, Federal Securities
Market Commission
12
RegiongasHolding Example
As a result of public pressure, Gazprom recovered
control over RegiongasHolding
Source Federal Securities Market Commission,
Regiongasholding 4Q 2002 securities market report
13
Sibneftegaz Example
First dilutive issue took place in July 1997.
14
Sibneftegaz Example
Second issue bring Gazprom down to only 21 to
the benefit of two Itera affiliated companies
(38) and Ingeneeringoil (5) owned by Vyakhirev
kins.
15
Sibneftegaz Example
Sibneftegaz intrinsic value is between 78 mln
and 627 mln based on 1.57 BOE of hydrocarbon
reserves
16
Sibneftegaz Example
Gazprom management related parties benefited from
Gazprom dilution
17
Sibneftegaz Example
In light of these and other discoveries,
president Putin fired Gazproms CEO Rem Vyakhirev
Gazprom Share Price (US)
May '01 Putin sacks Rem Vyakhirev as CEO of
Gazprom.
Source Bloomberg
18
Disclaimer
The information is based on data obtained from
publicly available sources, which have not been
verified by Hermitage Capital Management Limited,
or any of its respective associates or
affiliates. As a result of the difficulty in
obtaining reliable data in Russia, we do not
represent this information to be accurate and
complete and we do not accept any responsibility
for the reasonableness of any conclusions based
upon such information.