Daily analyst comments

At a court session on May 14, at which the settlement of a corporate conflict around TGK-11 was discussed, it was decided to refer the case to the Federal Arbitration Court of Moscow District, which will hear it on June 15. At the forthcoming session, the parties intend to present the court with an amicable settlement on the corporate conflict between Rosneft and TGK-11. The conflict erupted over the terms for merging Tomskenergo into TGK-11 when Tomskenergo blocking shareholder, Rosneft, represented by Neft-Aktiv, its wholly-owned subsidiary disputed the process.

The Energy Ministry’s order to Inter RAO UES and Rosneft has helped resolve the conflict. Acting on the ministry’s instructions, the two companies have held talks with all the parties concerned and agreed on the terms of compensation to Rosneft for its financial losses incurred upon the swap of a blocking stake in Tomskenergo into a minority interest in TGK-11. Inter RAO UES, which is not formally a TGK-11 shareholder, has undertaken to act as a broker in resolving the conflict with a view to amassing a controlling interest in the genco as part of its development strategy. Its priority goals are to develop the generation segment and optimize the infrastructure for trans-border electricity trade.

The expected settlement of a corporate conflict around TGK-11 undoubtedly bodes well for the genco. The agreement will make it possible to bring the genco’s separately traded share issues into a single issue and draw additional funds for the genco’s investment program. A potential buyout offer may also be of interest to investors. The offer should be made after Inter RAO UES takes control of TGK-11. However, until the terms of the amicable settlement are known, we expect limited reaction from the market.