Prokhorov Pockets TGK-4 for $500M

APMikhail Prokhorov
Billionaire Mikhail Prokhorov snatched the state's stake in the power company TGK-4 with a surprise bid of $500 million on Monday, shattering expectations that a foreign investor would win the auction.

Prokhorov's Onexim Holding acquired 32 percent of TGK-4 shares at 2.7 kopeks per share, or $598 per kilowatt, said Unified Energy System, the former state electricity monopoly that sold the shares.

There was no minimum bid, and UES refused to disclose the sizes of the other bids.

The competition was hot, with rival bidders including the world's biggest steelmaker, Novolipetsk Steel, France's Electricite de France and Germany's RWE. Investment fund Halcyon Advisers and Korean electricity giant KEPCO had been widely expected to win the auction with a joint bid.

The bid by Onexim, a main shareholder in Norilsk Nickel, came as a surprise because Norilsk last year announced that it would spin off its noncore power assets into a $7 billion company. The plan, however, is in limbo after Onexim shareholders refused to sign off on it in December amid a power struggle with Norilsk's other main shareholder, Vladimir Potanin.

Prokhorov's decision to buy TGK-4 appeared to be out of spite, said Alexander Kornilov, a utilities analyst at Alfa Bank.

"Norilsk Nickel has no production in the area where the TGK-4 operates," he said. "The only reason why Mr. Prokhorov could buy the asset was to show his independence from the other big company shareholder -- Vladimir Potanin, with whom he is still splitting the assets."

Onexim defended its purchase as an important step to diversify its investments. "It gives us an opportunity to enter the prospective electricity market in central Russia," the company said in an e-mailed statement late Monday.

TGK-4 operates 25 power stations in 11 regions on the European side of Russia, including Smolensk, Lipetsk, Tula and Voronezh.

The big loser is KEPCO, which has been desperately trying to enter the Russian electricity market, Kornilov said.

"The only hope they have got is TGK-14, which will be sold in May. Its stations are located in the Chita and Buryatia regions, closer to the Russian-South Korean border," he said.

Halcyon Advisers withdrew from the auction Monday after failing to "finish all the official procedures inside itself before the deadline," said a source familiar with the situation.

TGK-4 will issue an additional share emission of 30 percent on Thursday, and Onexim said it would buy the shares.

Separately, TGK-13's board decided on Monday to sell the state's stake of 14 percent and an additional share emission of 19 percent for $471 million, with a price of 21 kopeks per share, or $495 per kilowatt.

The company's capitalization is estimated at $1.2 billion to $1.5 billion.

SUEK, the company's main private shareholder, is expected to buy the shares to gain a controlling stake. It now has 35 percent, while UES has 56.5 percent.

TGK-13 operates nine power stations in the Krasnoyarsk and Khakasia regions, with an overall capacity of 2,548 megawatts.

Also Monday, UES said it would accept bids for the government's 32 percent stake in TGK-7 until April 21.

Viktor Vekselberg's Integrated Energy Systems and Gazprom are expected to make a joint bid for the stake.

UES said that after Monday's auction, it has raised 748.7 billion rubles ($31.8 billion) since it started selling its assets in October 2006.