On July 4, 2008, the Moscow Court of Arbitration declared invalid the decision made by Tomskenergo's EGM on 24 August 2007 to merge Tomskenergo with TGK-11 (RTS: TGKK). The court has upheld the claim filed by Neft-Aktiv, a Rosneft structure, against TGK-11. Neft-Aktiv is litigating against the consolidation of TGK-11, created during the restructure of the power utilities industry. Neft-Aktiv filed a total of 7 claims against energy companies held by Rosneft, including 3 lawsuits against TGK-11: the company challenges TGK-11's additional issue to have the genco spun off from UES and the company's consolidation by taking over Tomskenergo. Neft-Aktiv became the owner of a share package in Tomskenergo and two grid companies last year within the sale of Yukos assets. Yukos, as a Tomskenergo shareholder, blocked the company's merger with TGK-11 twice.
Earlier, on July 3, 2008, the Moscow Court of Arbitration postponed a hearing in a lawsuit filed by Neft-Aktiv against TGK-11 on the issue of performing a technical additional issue in order to have the genco unbundled from UES before August 14. Neft-Aktiv challenges a TGK-11 EGM decision to issue 2.2 billion additional shares to take over TGK-11 Holding. Additionally, due to the wind-up of UES on July 1, 2008, the court cited UES' legal successor, the Federal Grid Company, and TGK-11 Holding, which is one of the holding companies created within the UES split-off, as co-defendants in the case. As a result, because of Neft-Aktiv's lawsuit, under which injunctive relief measures were enacted, TGK-11 was not able to be spun off from UES under the standard scheme, i.e. by taking over an intermediary structure, TGK-11 Holding. Therefore, effective from July 1, TGK-11 is a subsidiary of TGK-11 Holding.
In our opinion, these judicial acts are extremely negative for TGK-11, since other lawsuits may be filed against the genco, which could lead to reconsideration of the genco's legitimacy. Furthermore, the current ownership structure, under which former UES shareholders own shares of TGK-11 not directly, but through TGK-11 Holding, significantly impairs TGK-11 liquidity. This has a negative impact on the genco's EV due to a low liquidity discount. Although the company is undervalued as compared to peers, we recommend that investors not buy its shares until the lawsuits are settled.
The fair value of TGK-11 shares is USD 0.00132 per share, which corresponds to a Buy recommendation.
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