UES has completed the assignment of a number of assets that comprise the country's unified national power grid to Federal Grid Company (FGC), Interfax news agency reported quoting the energy holding's materials. UES used assets to pay for FGC's second SPO. Shares from eight trunk grid concerns were folded into FGC's charter capital. This is FGC's second issue of additional shares to be carried out for the purpose of contributing assets that are assigned to the national electricity network. During the first additional offering, the energy holding contributed to FGC equity stakes of 42 trunk grids spun off from regional energos and now it is to make an additional contribution using the shares of those concerns that were spun off at a later time.
As regards the future prospects of FGC the following conclusions may be drawn: upon completion of UES' restructuring FGC will turn into the country's largest utility company with a market cap of $30 bln – as part of the final phase of the energy holding's restructuring FGC will receive from the state its stakes in generating assets held by WGCs and TGCs and worth $17.2 bln (which is needed to raise the state's equity position in FGC to 75%). According to our estimates, right now FGC, still a 100% subsidiary of UES, could cost $11.4 bln without taking into account trunk grids and generating assets that will be assigned to the company after restructuring is completed, with an additional $2.5 bln falling to assigned minority stakes in trunk grids. Given stakes to be assigned from WGC-s and TGCs, FGC's market capitalization will total some $30 bln.
In addition, another important aspect is noteworthy. All assets to be folded into FGC were estimated close to their current market value. The only exception is trunk grids – in the course of stock swap procedures they were assessed an average 70% below the market. Regional trunk grids will account for only 15-20% of FGC's capital, with the rest coming from other assets. Taking into account the fact that upside potential of the other 80-85% of FGC's assets is very limited, the current market price of trunk grid companies is not justified, there is a strong likelihood for a 20-30% decline in FGC's stock valuations by July 2008, just when UES's restructuring is to be completed.
In line with our valuation method applied to trunk grids and based on stock swap ratios, we adjusted our target prices for trunk grid businesses. We project a contraction in stock valuations of trunk grids going forward.
0.553
1.6
