Research Notes

WGC-1 is the last and the only concern in the WGC segment which still has no strategic investor. UES owns 91.68% of this company. Approximately next February WGC-1 will issue additional shares for 24.64% of its charter capital and, as we expect, at the same time UES will ditch 47.7% of the genco's securities falling to the state's equity position. Thus, a potential strategic investor could grab up to 58% of WGC-1's capital after the SPO.

When WGC-1 floats its additional shares, we expect the utility's installed capacity to be valued at least in line with the average for previous flotations at $560 per kW. Our valuation is sufficiently conservative, given that the latest transactions in the WGC segment in favor of strategic investors were valued at no less than $629 per kW. However, our conservative expectation implies 25% upside to the current market valuations of WGC-1's capacity of $449 per kW.

Taking into account that WGC-1 will be the last wholesale generation company, in which a strategic investor could gain control, we could see serious competition for WGC-1 shares. Our valuation of WGC-1's estimated share price based on peer analysis points to 17% upside and up to $0.113 per share. Even though upside is modest, we expect speculative demand for WGC-1 shares in the run-up to news about the company's new strategic shareholder, which we believe might pay at least a 25% premium to the current market price.

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Simon Birg

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