Daily analyst comments

The TGK-10 generation company (RTS: TGKJ) is prepared to buy back its shares from shareholders who oppose a deal with Siemens on deliveries of equipment to the Nyagan state regional power plant, or who abstain from voting on this issue at an EGM. The company offers to pay RUB 109.2 per share. The shareholders must submit the request to buy back their shares to the TGK-10 registrar, Central Moscow Depository, by the deadline of December 15. The deal with Siemens on the delivery of EUR 225 million worth of equipment is yet to be approved by the EGM, to be held on October 30. The meeting will be held in absentia. Only the shareholders that were on the company's shareholder register as of September 25, 2008, are entitled to attend the meeting.

In our opinion, the forthcoming offer reveals that Fortum, a TGK-10 core shareholder, aims to consolidate a share package of over 95% in the genco with the aim of presenting a forced buyout offer to its shareholders. To date, Fortum has amassed slightly more than 90% in TGK-10 through an earlier buyout offer. Since the shares bought are to be accumulated on the TGK-10 books, Fortum's stake in the company will formally remain unchanged. Its holding, however, will actually rise in relative terms as soon as the shares bought, which will become Treasury shares after that, are redeemed. TGK-10 shares are now traded on the MICEX with a discount of over 58% to their projected buyout price, meaning that a generous buyout offer lies in wait for investors. Given the current crisis on financial markets, many shareholders will likely want to accept the offer. However, given the cut-off date of September 25, 2008, we do not expect a rally in TGK-10 shares. For all that, we recommend that investors who were included on the company's shareholders register as of September 25 take advantage of the offer.

Our fair price for TGK-10 shares (RTS: TGKJ) is USD 1.02953 per share, which corresponds to a SELL recommendation.