On September 6, 2008, Vasily Zubakin, acting as RusHydro (RTS: HYDR) board chairman, made a number of announcements as regards the genco’s development strategy and current activities. Firstly, RusHydro plans to outline its international strategy by late 2008. This strategy should determine the business activities that RusHydro intends to perform while working abroad: design, construction and engineering maintenance of projects. The company plans to enter the markets of India, Nepal, Bhutan, Vietnam and Laos. To implement these projects, RusHydro intends to engage Russian partners.
Secondly, Zubakin said that RusHydro did not plan to remain an OGK-1 shareholder even though the deal to sell off the genco had been shelved, since OGK-1 is not a core asset of RusHydro. However, RusHydro does not intend to sell OGK-1 until 2009. Thirdly, RusHydro is currently in negotiations with several Russian banks on additional loans in FY 2008 for a total of up to RUB 3 billion. Prior to the financial crisis, the volume of debt financing in FY 2008 had been expected at RUB 1.3 billion. The company faces a deficit of investment funds due a downturn in revenue because of the low water content of rivers. Fourthly, RusHydro is apt to fully implement its investment program for FY 2008 except for the main power plant of the Zaramagskie HPPs in South Ossetia; the launch of which has been delayed due to shifts in construction dates caused by the conflict in South Ossetia.
Unfortunately, RusHydro activities in 9M 2008 were affected by three negative factors: the conflict in South Ossetia, the low water content of rivers and the financial crisis. However, these events did not come as a surprise to the market and are not likely to have any major impact on the company’s stock valuations.
The fair value of RusHydro (RTS: HYDR) is USD 0.13 per share, which corresponds to a BUY recommendation.
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