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The timing of an IPO leaves much to be desired, since the repercussions of the credit squeeze still put pressure on utilities shares. However, in all likelihood, even unsuccessful timing of the placement failed to dampen investment sentiment. In the event of NRGL's successful flotation in London, investors on the Russian stock market could also begin to rerate the risks attached to investing in utility shares, which will drive up stocks in the sector.
Interfax reported quoting the company's press release that the target band for shares in New Russian Generation Limited (NRGL), into which management company Prosperity Capital Management Limited (PCM) folded most utilities assets, earlier held by other funds, is set in the range of $9.05-11.15 per share as part of an IPO on the London Stock Exchange. Such valuation corresponds to the market cap of the entire company at $1.45-1.79 bln. Based on the placement price, an IPO will amount to $480-590 mln.
It was reported that New Russian Generation's portfolio includes stakes in TGC-2, TGC-4 and TGC-6 and also also some distribution grid companies, which, according to PCM, are to be folded into IRDGC Center and IRDGC Center and Volga. Prosperity owns around 19% in TGC-4 and TGC-6 and 27% in TGC-2. The management company holds nearly 13% in IRDGC Center and about 10% in IRDGC Center and Volga. PCM opted not to assign a 7% stake in TGC-7 to the new fund.
Based on the current market caps of TGCs and distribution grid companies, which are to be consolidated into IRDGC Center and IRDGC Center and Volga, the new company could be valued at $1.3 bln. According to our estimated fair market caps of industry entities, assigned to NRGL, the entire company could be valued at $1.7 bln.
| | Market cap, $ mln | Fair capitalization, $ mln | Prosperity‘s stake, % | Prosperity’s stake (at market cap), $ mln | Prosperity’s stake (at fair market cap), $ mln |
| TGC-2 |
1,095.3 |
1,466.4 |
27.0% |
295.7 |
395.9 |
| TGC-4 |
1,665.2 |
2,120.9 |
19.1% |
318.1 |
405.1 |
| TGC-6 |
1,287.5 |
2,005.9 |
18.5% |
238.6 |
371.7 |
| IRDGC Center |
2,043.1 |
2,349.6 |
13.0% |
265.6 |
305.5 |
| IRDGC Center and Volga |
1,717.7 |
1,906.6 |
10.0% |
171.8 |
190.7 |
| Total |
|
|
|
1,290 |
1,669 |
The fact that the placement enjoys strong demand (according to unofficial data the order book was oversubscribed) underscores continued interest by large portfolio investors in Russian utilities assets. According to our estimates, all companies in NRGL are currently undervalued by the market, ranging from 11% in IRDGC Center and Volga to 56% in TGC-6.
The timing of this IPO leaves much to be desired, since the repercussions of the credit squeeze still put pressure on utilities shares. However, in all likelihood, even unsuccessful timing of the placement failed to dampen investment sentiment. In the event of NRGL's successful flotation in London, investors on the Russian stock market could also start to rerate the risks attached to investing in utility shares, which will drive up stocks in the sector.
Simon Birg
Other comments of the day
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IRDGC Center
Capitalization: $844 358 829,36
Common shares:
Price: $0,016
Target price: $0,045
Recommendation: Buy
Delta week: 26,3%
Delta month: 85,8%
Delta year: --
IRDGC Center and Volga
Capitalization: $315 553 887,72
Common shares:
Price: $0,0028
Target price: $0,0096
Recommendation: Buy
Delta week: 10,9%
Delta month: -13,4%
Delta year: --
TGC-2
Capitalization: $147 490 238,99
Common shares:
Price: $0,00014
Delta week: -6,7%
Delta month: -44,0%
Delta year: -86,1%
Preferred shares:
Price: $0,00011
Delta week: -52,2%
Delta month: -54,2%
Delta year: -82,3%
TGC-4
Capitalization: $581 278 967,21
Common shares:
Price: $0,00028
Delta week: 16,7%
Delta month: -28,2%
Delta year: -77,2%
Preferred shares:
Price: $0,00011
Delta week: -8,3%
Delta month: -26,7%
Delta year: -85,1%
TGC-6
Capitalization: $372 576 427,08
Common shares:
Price: $0,00017
Delta week: 0,00%
Delta month: 30,8%
Delta year: -83,8%
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0.553
1.6
