Research Notes

TGC-5 will be the next company after WGC-5, WGC-3 and Mosenergo (TGC-3) to launch a secondary public offering (SPO). In the coming days the company will begin to take bids from investors, while SPO results will be summed up in late May. Given the limited upside potential of TGC-5, we do not advise investors to participate in the utility concern's SPO.

TGC-5 is in charge of the electricity and thermal power market in the area of its core operations: the Chuvashi and Udmurtia republics, Kirov region and the Republic of Mariy El. We believe that the company's proximity to the end consumer remains the key competitive ability of TGC-5. However, the region's insufficient industrial development puts a brake on the company's market cap.

• On May 7, 2007 the Board of Directors at TGC-5 determined the SPO price (including the price for shares to be offered to persons vested with the right of first refusal at the SPO) to be $0.00137 per share of the additional issue.

• The placement price was already determined and we are not confident that the plans earlier announced by TGC-5 to hold a road show and float shares among a wide group of portfolio and strategic investors will get off the ground. It is quite likely that the SPO will be placed in favor of a sole strategic investor, in all likelihood, CES.

At present, CES is TGC-5's largest strategic shareholder, owning around 20% in the utility concern's capital. After the buyout of the SPO its equity stake in TGC-5's charter capital will rise to at least 40%.

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Simon Birg

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