OREANDA-NEWS. April 12, 2010. The Energy Ministry submitted a draft decree for government approval that stipulates the conditions for assigning all remaining state non-controlling stakes in utilities companies to INTER RAO. Figure 1 shows a preliminary list of assets that could be transferred to INTER RAO. INTER RAO will need to perform an additional share issue in exchange for the state’s stakes, although its parameters have not been approved yet, reported the press-centre of OTKRITIE FC.

View: We estimate the  value of the state’s stakes, based either on the current market price or multiple-based valuation, at USD 6.6bn, while INTER RAO’s market cap is USD 4.6bn. This implies that under current market prices, INTER RAO will need to issue 3.2 tl new shares (143% of its current share capital) in order to perform the assets switch. Figure 2 shows our estimation of INTER RAO’s post-SPO shareholder structure, based on current market prices. The final approved valuation of INTER RAO’s shares for the purpose of consolidation is crucial for its minorities, since their stake could be dramatically diluted.

Valuation: INTER RAO trades on a 2011E EV/EBITDA of 6x, which is in line with Russian and EM generation peers.

Action: We do not expect an immediate market reaction to this news, but note the risk of potential dilution of stakes for INTER RAO’s minorities.