Daily analyst comments

December 7, Interfax, quoting insider sources, reported that the acquisition of 67.13% of Novoship‘s common shares was completed by Sovkomflot. Under this deal, the entirely state-owned company Sovkomflot obtained the state’s stake in Novoship (50.34% of the charter capital). This stake is to be paid for with a 44% additional issue of Sovkomflot's shares. Sovkomflot has secured control over Novoship, however, at this stage both companies formally remain separate legal entities.

By law, Sovkomflot has already consolidated over 30% in Novoship, and is now required to make an offer to the minority shareholders of the latter. Several media sources report that the company has provisioned RUB 3 bn (USD 122.5 mn) for the upcoming offer. The majority of Novoship’s voting shares are concentrated in its subsidiaries and this simplifies the situation for Sovkomflot. Based on our estimates, Sovkomflot now controls around 90% of the common shares in Novoship. We believe that the offer price will be set based on an independent valuation. The valuation was made to set the merger parameters. The common shares were valued at $3.26, while preferred shares were estimated to be $2.01 per share. The amount that was provisioned by Sovkomflot indicates that Sovkomflot is not presently planning to consolidate 100% of Novoship. As before, a considerable part of the shares are to be held by Novoship’s subsidiaries.

We believe that the shares of Novoship are the only unique opportunity to potentially participate in the capital of the merged sea carrier Novoship-Sovkomflot. We forecast that this company is to be created by 2009. Our fair value for Novoship’s shares is above the offer price. We estimate the value of the common shares to be $3.61 per share and we value the preferred shares at $2.23 per share. Therefore, we do not advise the minority shareholders of Novoship to accept Sovkomflot’s offer despite the current discount to the offer price.