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Gazprom Puts a Chill Into UES Share Sales

State utility Unified Energy System is feeling a chill in the air that has nothing to do with the onset of winter. 

In the middle of last week, UES finance director Sergei Dubinin said the planned sell-off of OGK-6 had been delayed, adding that the company would monitor market conditions. It is a blow to the generating firm, which analysts say needs the proceeds from the additional listing to fulfill its investment plans. 

Just weeks before, OGK-2's share sale flopped, raising $1.05 billion, far short of the hoped-for $1.68 billion, after Gazprom bought in at the lower end of the price range to keep control. 

It seems UES is getting neither the desired valuations nor the investors amid the still-turbulent global economic environment. 

Some argue that the common denominator here is not toughening market conditions but the role of state-controlled Gazprom, which is taking a controlling stake in both gencos through share swaps. 

"The secondary placement [of OGK-6] will not attract any other strategic buyer except Gazprom," said Dmitry Skriabin, a metals analyst at Aton brokerage. "[Gazprom] is a major problem for attracting any other bidders." 

Of course, Gazprom could bid for the whole company, but analysts believe that the gas monopoly may lack the necessary cash at present, even if it was willing to pay UES's preferred valuations. If the OGK-2 sale is anything to go by, it is not.
By mid-2008, when UES is to be wound up, it plans to spin off a total of 20 generating companies to bring competition and much-needed investment to the sector. Until recently, demand has been very robust. Russian investors seeking their own power supplies have already snapped up stakes in a number of utilities, while both Fortum and Enel have also picked up blocking stakes. 

The future appears to be brighter for TGK-4, the generating company slated to list in December. With no core shareholder to put everybody off, the firm is attracting interest from a number of strategic investors, including overseas buyers. Germany's E.On, Korea Electric Power, investment fund Prosperity Capital Management and the Czech Republic's CEZ have all signaled their interest. 

Meanwhile, two former managers at UES are setting up their own fund, Rusenergoinvest, to target investments in the power sector. This year alone, they reportedly plan to invest $2.5 billion in electricity assets. 

But Denis Obukhov, portfolio adviser at Wermuth Asset Management, which has a small stake in OGK-6, says it is "hard to find value" in the generating companies, noting that there are some very attractive opportunities on the electricity distribution side. 

"Distribution and hydro assets are the most undervalued," Obukhov said. "We looked at the [generating stocks] six months ago, and even then their multiples were extremely high." 

Still, good news came out of OGK-3, controlled by Norilsk Nickel, which posted a first-half net profit of 1.75 billion rubles ($70.2 million) compared to a net loss of 299 million rubles ($12 million) a year earlier. 

UES stock lagged behind both Russian indexes, dropping by 0.33 percent during the week, while both the RTS and MICEX closed up. The RTS, which broke yet more records this week, closed at 2163.11 points, up 2.25 percent. MICEX closed up 1.81 percent to 1802.45 points.


(The Moscow Times 15.x.07)

 
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