As Bell Chimes, UES Stops Trading

Itar-TassChubais checking his watch as he waits for the MICEX closing bell at 6 p.m. Friday. June 6 was UES's last trading day.
After the Friday bell on the MICEX stock exchange, Unified Energy System, the country's former power monopoly, stopped trading for good.

And with it, a post-Soviet company, once excoriated by its own chief executive as a last bastion of socialism in Russia, will ideally cede the stage to a host of market-friendly spinoffs.

But its final bow could herald a new bout of asset grabbing and market monopolization by superrich energy giants, analysts fear.

"With hope and with fear, but mostly with hope, we will watch for the growth in capitalization in the companies being broken off from UES," said its chief executive, Anatoly Chubais, at a ceremony on the MICEX trading floor.

"The old granny is retiring, but I hope her grandsons will give a powerful new impulse to further development of the Russian stock market," he concluded.

Once the embodiment of Vladimir Lenin's plan to electrify the nation, UES became a proxy for the country's entire nascent stock market when it first hit the Russian trading system in the late 1990s and at one point made up nearly 50 percent of all ruble-traded volumes.

The company set out to break itself up in 2003 under a Kremlin-backed reform.

The reform will end on July 1, when UES will be liquidated and its shareholders will receive pro rata stakes in 23 of its subsidiaries. Analysts say this basket of companies is around 40 percent more valuable than UES itself.

"I have to admit the date of July 1 makes me nervous, because no one knows what will happen ... how the rights of investors will be protected," Alexander Sinenko, deputy head of the Federal Service for Financial Markets, said at the ceremony.

"But I do feel certain that the story of UES, the story of the UES stock, is only beginning."

Compared with the price of global utility assets, the UES spinoffs are trading at a significant discount, analysts say, but this discount is justified by significant risks.

By 2011, the country has agreed to gradually free electricity prices, allowing power producers to pass on their costs to consumers and realize their profit potential on a free market.

But for politicians, raising prices will be a painful process and Kremlin-watchers say newly elected President Dmitry Medvedev will face calls to delay or even call off the price increases, especially if inflation stays in double digits.

Without meaningful price reforms, many of the UES spinoffs will continue to make losses or cut back their growth plans to eliminate costs.

The other key threat to the basket of UES stocks is the re-monopolization of the market, said Vadim Borokhov, utilities analyst at Renaissance Capital.

Gazprom, the state-controlled gas export monopoly, has gained control of some of the choicest spinoffs.

If it pulls off a planned merger with another key player, Siberian Coal and Energy Company, known as SUEK, Gazprom will control some 40 percent of the country's fossil-fuel based power capacity, as well as much of the fuel used to run it.

Its competitors -- including Finland's Fortum, Italy's Enel, Germany's E.On and RWE, all of which have bought control of major generating firms -- will have to buy their fuel from Gazprom, an advantage for the gas giant that many have called unfair.

Integrated Energy Systems, the investment vehicle of metals and oil magnate Viktor Vekselberg, could also prove large enough to dominate, having bought control of four of UES's twenty thermal generating companies.

"Don't worry, you ain't seen nothin' yet," IES president Mikhail Slobodin said at a recent briefing.

"After UES is gone, that's when the real scuffles will start, the buyouts, the bidding wars. ... One thing's for sure: you guys won't be bored," Slobodin told a pack of reporters.