Research Notes

Based on RBC data, Archivo Limited purchased 18.8853% of shares in TGC-6 (RTS TGKF). Archivo Limited did not previously own shares of TGC-6. According to unofficial information, Archivo Limited represents the interests of a Prosperity Capital Management fund that jointly with IES Holding was a minority shareholder of TGC-6. The shares that belonged to the fund were transferred to Archivo Limited and now Archivo has become one of the candidates to purchase shares of TGC-6 during an additional stock issue in March 2008.

We believe that the restructuring of Prosperity's position in TGC-6 might be related either to the planned IPO of the Fund's power assets, or plans to find a new strategic investor, which would be interested in TGC-6 capital. The expected main contender to purchase this company is currently IES Holding (Integrated Energy Systems). This holding manages the power assets of Viktor Vekselberg. Presently, IES owns around 22% of the shares in TGC-6. We believe that Prosperity is also interested in bringing up its share in TGC-6 and most likely negotiations with potential investors of the Fund are already in progress.

Given the limited number of WGCs and TGCs, where a new investor could gain control over the company, even if it is not yet a stockholder, means that it is quite likely that the opportunity to take a controlling stake in TGC-6 is to spark the interest of foreign investors that haven't yet got a piece of the Russian thermal generation pie – Fortum, EDF, KEPCO or RWE. Strategic investors demand for undistributed assets in the thermal generation sector in the last months already has helped the stocks of WGC-1 and TGC-4 to gain 21% and 18%, respectively, while valuations of shares of TGC-6 remained at the same level, and the market capitalization of the entire sector of thermal generation increased only by 2%.

Based on our estimates, TGC-6 is one of the most undervalued companies in the WGC-TGC segment. We believe that the upcoming additional share issue of TGC-6 would be an upside driver for this stock. We think that the company is to be traded at the level above USD 500/kWt and assign a Buy recommendation to shares of TGC-6. Our fair value of the company is USD 0.0016 a share with an upside of 57%.

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Simon Birg

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