How Gazprom Could Have Double the Market Cap of Exxon Mobil

Gazprom (LON:GAZP) reckons it could be a US$1.2 trillion company within the next 5-7 years. The company, which your editor tipped in 2001 as a play on Russia's natural gas assets, has a current market value of US$251 billion. Yet if it was valued on its energy assets at the same multiples as Exxon Mobil (NYSE:XOM), a US$479 billion company, Gazprom would instantly have double the market cap of Exxon.

So why doesn't Gazprom already enjoy a market value to reflect its energy assets? The company is half-owned, and some say fully-in-the- pocket, of the Russian government. Besides that, the share structure favours local investors and not foreign capital. But all that could change in the next few years.

And in any event, the market is going to have to get used to placing valuations on companies in which sovereign governments have a large or controlling stake. It's not just that energy assets have been nationalised in places like Russia and Venezuela. The emergence of sovereign wealth funds - national investment war chests wielded by State money managers - means that public companies will have government owners.

These sovereign wealth funds have more real cash than hedge funds (US$2.5 trillion to US$2.1 trillion.) The key difference is that the sovereign wealth funds are not just organised to deliver total return to shareholders. They are also designed to secure the strategic resource needs of whole nations (like China.) What will this do Aussie resource prices? Hmm.

Dan Denning
The Daily Reckoning Australia

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