St. Petersburg Utility Enters ADR Program

ST. PETERSBURG — Energy utility Lenenergo will launch a Level 1 American Depositary Receipt program consisting of 10 percent of the company’s shares — with a face value of 8.9 million rubles ($325 000), Viktor Nesterov, the secretary of the Lenenergo board of directors, announced Friday.

Conversion terms for the issue will be determined after the signing of an agreement with the U.S. Securities Exchange Commission in October.

Level 1 is the lowest level for ADRs, involving the deposit of a set number of already existing shares in the company at the Bank of New York. The Bank of New York then issues a number of shares in the United States based on the Russian securities. In order to issue Level 2, a foreign firm must meet certain, more stringent requirements from the U.S. Securities and Exchange Commission, including following the Generally Accepted Accounting Principle, while to issue Level 3 ADRs the issuing company actually raises capital on the issue.

"The launch of the ADRs is being undertaken to increase the liquidity of their shares," said Harmut Jacob, an analyst at Renaissance Capital. "The ADR market makes it possible to trade in shares of foreign — in this case Russian — companies, on the American Exchange."

A market report by Renaissance Capital said that this will be the first launch of a Level 1 ADR program by a regional energy company since the August 1998 financial crisis. "It shows that management is working hard to improve the image of the company, which is underscored by the presence of two Western strategic investors — Preussen Electra of Germany (which hold 9.24 percent of the shares) and IVO of Finland (4.16 percent of shares) on Lenenergo’s board of directors," the report says.

"In the future, we are hopeful to launch shares in Level 2 and Level 3 ADRs, but it is a question that is too early to discuss," Nesterov said.

Concerns remain that Lenenergo may not be approved for the Level 3 emission, as the utility’s methods of annual reporting to investors don’t conform to international standards.