UPDATE 2-Germany’s E.ON may sell stake in Russia’s Gazprom

* E.ON plans to sell 3.5 pct stake to Russian bank VEB

* Gazprom stake valued at $4.5 bln at current market prices

* Putin may discuss possible sale with Merkel in Berlin

(Updates with analyst comment, details, background, shares)

By Gleb Bryanski and Dasha Korsunskaya

MOSCOW, Nov 24 (BestGrowthStock) – Germany’s E.ON Ruhrgas (EONGn.DE: )
may sell its $4.5 billion stake in Russian gas giant Gazprom
(GAZP.MM: ) to Russian state-owned bank VEB as the German firm
struggles to cope with high debts and falling revenues.

Prime Minister Vladimir Putin, who is also chairman of VEB,
may discuss the possible sale of the stake with German
Chancellor Angela Merkel on Friday during a visit to Germany,
his spokesman said.

“There will be no separate talks on the issue but it could
be assumed that this subject will be touched upon,” Dmitry
Peskov said over the phone.

A source close to negotiations between VEB and E.ON told
Reuters talks over the 3.5 percent stake in Gazprom have taken
place, confirming an earlier report in Kommersant daily.

E.ON, the world’s largest utility, has announced 15 billion
euros in divestments through 2013 as the picture for earnings in
the next three years looks bleak. [ID:nLDE6A90NG]

VEB, which is also the government’s debt and investment
agent and holds the cash for Russia’s sovereign National Welfare
Fund, declined to comment on the transaction. Gazprom and E.ON,
which had debts of about 45 billion euros ($60 billion) at the
end of September, also declined to comment.

MOTIVATION – E.ON OR GAZPROM?

“We do not think this transaction reflects Gazprom’s lack of
attractiveness, but rather is a result of E.ON’s own priorities,
which are to reduce its debt and invest in operating assets
rather than in stocks,” Renaissance Capital analysts said.

That view on E.ON’s desire to cut debt was echoed by other
analysts, although some highlighted that Gazprom’s dominance of
the European gas market is under assault from cheaper spot gas.

“I think this is a one-off case … The main motivation is
the sharply deteriorating financial state of E.ON as well as the
known situation in the European market,” said Troika Dialog
analyst Valery Nesterov.

“Companies which are buying expensive Russian gas have lost
a possibility to re-sell it due to the emergence of cheap spot
gas on the European market … I know that the German firms are
deeply worried by this situation,” he added.

Qatar, the world’s largest producer and exporter of LNG, as
well as the United States, awash with domestic shale gas, are
both making deliveries to the European spot market.

Gazprom shares have fallen 8.4 percent in the year to date.

E.ON’s new Chief Executive Johannes Teyssen said earlier
this month the company saw its Gazprom stake as “non strategic”
and said the company wanted to expand in China or Brazil.

Kommersant said VEB would likely pay a premium for the
Gazprom stake over the current market price, to support the
company’s market cap and act as a signal of the government’s
bullish view on the future of pipeline gas.

It was not immediately clear what VEB planned to do with the
stake in Gazprom but the Russian government has recently
indicated it was interested in swapping stakes in
state-controlled firms for foreign assets.
(Additional reporting by Vladimir Soldatkin and Peter Dinkloh;
Writing by by Gleb Bryanski; Editing by Matthew Jones)

UPDATE 2-Germany’s E.ON may sell stake in Russia’s Gazprom