Interfax reported quoting a source familiar with the process auction preparations that four companies filed bids to acquire 25.03% in WGC-5 owned by the power holding. They are Italian Enel, German E.ON, Russian Aluminum and Novatek. The timeframe to accept bids elapsed on Monday and the auction will be held on June 6. After the auction, the remaining 50% stake in WGC-5 held by UES will be distributed between its shareholders as part of the first stage of the power holding's reorganization and this stage is to be completed in September.
It's noteworthy that the starting price of the blocking stake in WGC-5 is $954 mln, which corresponds to $440 per kW of installed capacity. The company's current market valuation is $562 per kW and a blocking stake in WGC-5 could be valued at $1.2 bln, up 25% on the starting price. We believe that the final price of the auction will be at least $600 per kW, which puts the value of the blocking stake at $1.3 bln. The benchmark of $600 per kW was set during WGC-3's flotation, although downbeat market conditions could depress the placement price.
Participation of foreign investors (E.ON and Enel) could stoke interest in the auction. However, foreign bidders will not likely win the auction in the event of considerable interest on the part of Russian strategic investors. The intrigue could be attributable to the fact that Gazprom will not bid in the auction and Novatek will. Novatek's interest could be due to Gazprom's interest, since the gas giant fears that FAS could disapprove of its aggressive expansion in the utilities industry and therefore prefers to structure transactions via third parties instead of direct acquisitions. In this case, Novatek could win the auction provided that Gazprom honors the transaction.
We assign a Hold recommendation to WGC-5 with a fair price of $0.149 per share.
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