Gazprom Keeps Control of OGK-2

Itar-TassGazprom CEO Alexei Miller talking to First Deputy Prime Minister Dmitry Medvedev before a board meeting Friday.
Gazprom paid $640 million on Friday to keep control of power generator OGK-2, scaring off other investors in a secondary share offering that was slashed in size.

All generation companies are being spun off from former power monopoly Unified Energy System to raise money for costly upgrades and to introduce competition to the sector.

Wholesale generating company OGK-2 cut the placement to 5.4 billion shares from the 12 million initially planned, and set a price of 16 cents per share -- at the lower end of the price range.

The company thus managed to attract only $864 million, having originally sought to raise some $1.7 billion to fund its investment program.

OGK-2 also scrapped plans to issue $300 million to $350 million of bonds convertible into its shares, citing amendments made to the placement plan and uncertainty surrounding the flotation until the last moment.

However, UES chief executive Anatoly Chubais said during a conference call Friday that the book was not yet closed on the deal and that UES still hoped to attract more investors.

"In a few days we will say when the sale will be completed," Chubais said.

"Here we are seeing a price not lower than the indicated price range but higher, and higher also than the market price. For this reason, it is not right to call the demand low."

Whatever problems the share sale was facing were the results of "untenable" conditions on global stock markets, Chubais said.

He did not rule out postponing some share offerings by power generators if global market conditions remain difficult.

Chubais also said UES might return in the next few days to the possibility of offering the bonds convertible into proxy shares of OGK-2.

In June, UES gave Gazprom exclusive rights to swap its stakes in some power assets with other UES investors to get control of OGK-2. Analysts said Gazprom's involvement deterred portfolio investors.

"OGK-2 would have placed just as successfully as the other [generating companies], that is for about 30 percent more, if it had not been involved in the share swap scheme," said Dmitry Scriabin, utilities analyst at Aton brokerage.

n UES will use a greenshoe additional allotment option in the secondary offering of shares of power utility OGK-6 to prevent stock price volatility during the sale, it said in a statement Friday.

In case of high demand the greenshoe, or over-allotment, option will allow the underwriters to sell more shares than planned of OGK-6 to keep its price on the open market from fluctuating drastically.

n UES will sell the government's stake in regional power firm Kuzbassenergo to a range of investors, it said in a statement Friday.

The state's 138 million shares in Kuzbassenergo, or TGK-12, will be sold at the same time as the company's share offering and at a price no lower than the price of the offering, UES said.

n The Federal Grid Company will have to pay fines if it delays connecting power suppliers to the high-voltage grid, UES decided Friday.

The grid company will pay generating firms 2 percent of the connection costs for every month of delays, but not more than 25 percent in total, UES said. It will also compensate firms for losses sustained because of the delays.