Research Notes

In early August, another utility is scheduled to float its shares and strategic investors will be offered a 64-65% stake in WGC-4. Looking forward to a new record high, market participants currently value WGC-4 higher than other thermal generation companies. The utility's placement price is to be determined on August 3, 2007. In our opinion, WGC-4 shares are overvalued by investors and although interest of strategic investors is strong, the shares will be placed at $0.118 per share which is below the current market price.

• Out of the entire amount of shares announced for placement, the company plans to float the amount necessary to raise $1.8 bln t finance the investment program. The additional share issue (the maximum amount is 46.8% of the charter capital) and UES's stake due to the state are to be sold as part of the same transaction. As a result, the company's new shareholder will obtain the entire additional share issue and a stake due to the state in the power holding's equity position.

• WGC-4's high capacity utilization and ambitious investment program, which, according to our estimates, provides for 48-50% rise in installed capacity by 2014, are reflected in upbeat market valuations of the company's prospect and WGC-4 is valued at $701 per kW, which is the strongest in the WGC segment as of the date of this report.

• We expect strong demand for the utility's additional shares, since WGC-4's power plants are located in regions with robust economic growth. In addition, electricity output of the company's power plants exceeds output of other WGCs given comparable installed capacity. WGC-4 has the highest capacity utilization in the WGC segment and this indicator stood at 67% in 2006.

According to the results of valuation of WGC-4's fair price based on the DCF method, we assign a Hold recommendation to WGC-4 with a year-end 2007 target price of $0.118 and 3% downside potential.

Clients of Finam Investment Company may receive full versions of analytical research reports translated into English by sending requests to the International Trading Department.

Simon Birg

* Short overviews of equity research reports and sector reports are posted on the website http://www.finamrus.com with a 1-day delay after their full versions are emailed to the company’s clients. To get overviews on the day of their release, please contact your manager at Finam to sign up for full versions of research reports.