Daily analyst comments

Shareholders in WGC-5 refrained from presenting shares for buyout as part of unbundling the company from UES, Interfax reported Monday. The buyout price was set by the company's BoD at Rub 2.79 ($0.11) per share, down 30% from WGC-5's current market price.

Unbundling from UES is to be completed by September 3, 2007 by splitting WGC-5 and TGC-5 shares from UES. At this stage of reform, UES shareholders will own stakes in the power holding and receive per UES shares 0.41 common share in WGC-5 and 13.59 common shares in TGC-5. One preferred share in UES corresponds to 0.37 shares in WGC-5 and 12.45 common shares in TGC-5.

WGC-5 includes Konakovskaya, Nevinnomyssakya, Sredneuralskaya and Reftinskaya GRES with aggregate capacity of 8,700 MW. After the reorganization is complete, WGC-5's core shareholder will be Enel, which currently owns 29.99% in WGC-5. The state, which owns 52.7% in UES will hold a blocking stake in WGC-5 and Gazprom will own around 5%. In the coming years, the company plans to implement a number of projects to build new and restructure existing production facilities. The company's investment program for 2007-2010 amounts to Rub 53.3 bln ($2.10 bln). Since coal accounts for 44% of WGC-5's fuel balance, the company has a significant advantage over other WGCs in the event of gas shortage.

We view WGC-5 as a stable and successfully developing utility. We believe that investor interest in WGC-5 is quite strong. For this reason, we can see stronger demand for UES shares which are to be swapped for WGC-5 and TGC-5 securities.

We assign a Buy recommendation to UES shares with a target price of $1.85 per common share and $1.67 per preferred share.