Mystery Buyer Grabs UES Stake

A mystery investor has been building up a hoard of shares in power monopoly Unified Energy Systems and may be out to influence the outcome of a fundamental restructuring of the company, traders and analysts said.

The investor -- possibly one or more players in the country's metals or oil and gas industries -- has spent the past six weeks buying up any UES shares offered on Moscow's ruble-traded Moscow Interbank Currency Exchange, or MICEX.

Traded volumes on the MICEX suggest the investor could have bought at least 15 percent of the utility, making it by far the single largest private shareholder, the traders said.

At its current market capitalization 15 percent of UES would be worth $750 million.

The government owns 52 percent of UES, with the balance held by private investors.

Shares in UES, which have risen on the buying, had plunged earlier in the year when many portfolio investors dumped the stock over worries that valuable assets would be stripped when the restructuring plan goes ahead.

Who the buyer is remains a matter of speculation, although many suspect the involvement of one or more oligarchs.

A single buyer would not have to declare a shareholding to the market authorities unless it is larger than 20 percent.

"It's obvious that big power consumers, or the banks that serve them, could be interested in electricity," Zenit Bank analyst Sergei Suverov said.

The buyer appears to already have enough potential influence to be a major force in restructuring UES, widely seen as one of Russia's most ambitious and difficult market reform projects to date.

Fifteen percent of voting shares -- if held by a single investor group -- could be enough to win at least one or two seats on the UES board, possibly forcing out portfolio investors who now hold directorships, according to analysts.

"For now it is only clear that the buyer wants to get access to UES's assets and to control the reform process through representatives on the board of directors," said Fyodr Tregubenko, an analyst at Brunswick UBS Warburg.

The mystery UES buyer has made what appears to be the first serious assault on the national parent company, whereas local industrialists have bought stakes in regional companies.

The buying began when UES shares were close to a low of under 8 cents in September.

"At the current market cap, a kilowatt [of installed capacity] is worth about $90, and the replacement cost is several times more," Zenit's Suverov said.

"Of course, you can call the current power stations junk, but they work, and they can be taken on favorable terms."

By the time the buying spree petered out over the past week, the share was up around 50 percent. UES shares closed at $0.116 on Friday.

UES has government backing for a plan to spin off its power plants from its grid monopoly, then re-consolidate them into free-standing generating companies.

When UES is broken up, current shareholders, including the government, are due to receive a proportional allocation of stakes in the newly independent grid and generating companies.

The electricity grid is to remain in state hands while generators may be privatized.

UES's key aim is to win investment for creaky power plants, many of which are near the end of their service life.

Analysts say that until the identity and intentions of the buyer are clear, a cloud of uncertainty will envelop the stock.

Analysts worry that the market for UES shares, at one time the most widely traded stock in the country, could end up in the thrall of one investor with the power to move the share price at will.

Another fear is that the new shareholder could reject the idea of proportional stakes in the new companies for everyone and try to bargain for bigger stakes for itself in UES's best generators to the detriment of other minority shareholders.

"It's hard for me to believe that, for example, a bunch of oligarchs want to receive proportional stakes in every company created in the reform," Tregubenko said.

"That principle could be violated. And the government, the main shareholder, is more interested in receiving a bigger stake in networks and some generation."