This summer, Russian power trader #InterRAO or its associated entities could consolidate the share capital of this state-controlled holding, buying back 23.5 percent from #FSK grid company and #RusHydro hydroelectric company. This would cost up to RUB100 billion, according to analytical estimates, and Inter RAO can afford it. In the end, Rosneftegaz (key shareholder of oil giant Rosneft) and Inter RAO will strengthen their control over the state holding while FSK and RusHydro will earn cash for their investment projects.
FSK federal grid company has started negotiations with Inter RAO to sell the former’s 18.57% percent in the holding, sources told Kommersant. A probable reason behind this step is the recent rally in Inter RAO share prices.
At present, control over Inter RAO looks quite diluted with Inter RAO Capital holding 18.4 percent as quasi-treasury stake and Rosneftegaz owning another 27.63%. Igor Sechin, CEO of national oil leader Rosneft, chairs both Inter RAO and Rosneftegaz boards of directors. In addition, 4.92 percent belongs to RusHydro and 30.52 percent are free float (reportedly, up to 12 percent are held by pension funds, probably including Gazfond which is a pension fund of Russian natural gas monopoly Gazprom).
RusHydro can also sell its stake in Inter RAO, Kommersant reported on 10 May. The former is already discussing a possible sale of Inter RAO Capital shares, with a preliminary agreement reached at the end of March. The deal price could head south of the market price, towards RUB17.172bn (RUB3.3463 per share), i.e. with 8.8 percent discount to the market price since the share price was RUB3.98 at the stock exchange on 16 May. The sale envisages payments by equal quarterly instalments in the course of 18 months and a one-year lock-up clause.
RusHydro did not comment the deal. However, according to a Kommersant interviewee, this deal should be more beneficial to the company than selling its shares in the market. It will try to sell the shares before the end of May due to an expected fall in the price after 1 June, when the shareholder register for dividend payments will be closed. However, the company may not be able to close the deal on time, another source says, and it will most likely happen at the end of June. Meanwhile, RusHydro really needs this deal to cover capex for four power stations construction in the Far East of Russia (the so-called 4×4 program worth RUB118.4bn).
The deal with FSK looks less clear. The market price of this stake is about RUB76.6bn, and a discount is possible, but in this case the discount could be more significant due to the size of the stake. According to a Kommersant interviewee, the discount could be 3 percent higher than that for RusHydro. Analysts believe FSK will be selling its stake in two steps and close the deal at the end of June or at the beginning of July, and still changes are not ruled out for both deals. We tried to find out more details from a Prime Minister’s representative but this request was redirected to the Energy Ministry. The latter commented “this is a matter of separate joint-stock companies”. Other government representatives we address provided no comments.
The sale of Inter RAO stake by FSK is quite logical since it is prohibited to combine grid and generation business in Russia, says Vladimir Sklyar from VTB Capital. In addition, there are plans to digitize networks with investments up to RUB1.5 trillion until 2030, so FSK could use funds from the sale to finance this program.
At the same time, the deals under consideration do not envisage an increase in Inter RAO Capital stake above 30 percent since this would result in a buyback offer to other shareholders. So, what we are going to witness is a complicated sale scheme with a part of shares purchased by Inter RAO Capital and a part by a non-related company that will later be included under Inter RAO umbrella. Following the stake acquisition from RusHydro, Inter RAO could repay its quasi-treasury stake, thus increasing the stake of Rosneftegaz in Inter RAO to 36.08 percent without triggering a buyback offer. Inter RAO used to reject this possibility and announced the stake is there for some foreign investor. At present, the company abstains from any comments. In its turn, FSK announced a government resolution would be required for the sale and it has not been made yet, according to the company.
It looks like Inter RAO finally found a good way to use its cash of RUB143bn, Vladimir Sklyar adds. The buyback could cost RUB90-100bn and acquiring its own shares is the most attractive market investment. He added investors could not resolve to buy the company’s shares earlier since they did not understand possible ways it could use its cash. At the same time, the analyst believes the dividends will likely remain unchanged amid looming expenses to upgrade power stations.