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. Last Updated: 07/27/2016

Alfa, Merrill Lynch to Advise UES on Revamp

Power monopoly UES picked Alfa Bank and U.S. giant Merrill Lynch as financial advisers on its ambitious restructuring program, the company announced Friday.

Analysts called the move long overdue and viewed it as an attempt to improve relations with shareholders who fear opaque asset sales and share redistribution will dilute their stakes. UES's stock has fallen 44.5 percent this year, while the RTS has risen 30 percent and market leader Yukos has seen its share price rise 69 percent.

"We want to help portfolio investors find a common language with UES management on the reform process," Andrei Rudenko, head of research with Alfa Bank, said in an interview Friday.

One of the consortium's main tasks is to help UES improve perceptions of the revamp, as well as to help flesh out the plan and recommend valuation methodologies and capital structure for the companies created in the process.

According to various sources, the two banks, which beat out 12 other domestic and international banks and investment companies in a tender, will get up to $1 million each for consulting services under the four-month, renewable contract.

Rudenko said the contracted amount is lower, but declined to say how much.

Friday's news did not have a positive effect on UES's share price, which closed down 1.11 percent.

Analysts were skeptical that the banking consortium could significantly change the pace or outcome of the overhaul.

"[This] should have been done a long time ago," said Hartmut Jacob, utility analyst with Renaissance Capital. But, he cautioned, "consultants can do only a limited number of things due to the highly politicized nature of the reform process and the extreme diversity of interests within UES itself."

"You can hire whoever you want, but if you can't do things yourself, consultants won't help you," Jacob said.

Kaha Kiknavelidze, who covers UES for Troika Dialog, said the short contract will allow banks enough time to offer recommendations but not to participate in their implementation.

Some minority investors found hope that their problems will be heard.

William Browder, whose Hermitage Fund is a minority shareholder in UES, blamed UES's actions in relation to sales of electricity generating assets for the current crisis of confidence.

Alfa Bank assured that it would make stopping asset sales at below market prices a top priority, Browder said.

"The only way they can solve this problem is if the investment banks convince Chubais [to] adhere to the government-approved restructuring plan, which says 'no asset sales,'" he said. "Whether Chubais listens to them or not -- that's a completely different story."

UES could not be reached for comment.

Alfa Bank's Rudenko said there is a serious risk that assets could be underpriced in part because current share prices are low.

Alfa Bank participated in the first UES asset sale, of the Solikamskaya heat and power station, in August.

Merrill Lynch could not be reached for comment Friday, but Rudenko said the two have been in contact and found common views on the major problems concerning UES.