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. Last Updated: 07/27/2016

Milepost UES Sale Brings In $459M

Itar-TassAnatoly Chubais, left, and Anatoly Bushin speaking to the press Tuesday.
Unified Energy Systems said Tuesday that it collected $459 million in the landmark sale of a stake in a power generation company and that no single buyer obtained more than 1.1 percent.

The sale of 14.4 percent of OGK-5 is a key first step toward raising billions of dollars in desperately needed investment to upgrade the national power grid.

"Today was a strategic step in electricity reform that has proven that what we have done for the last few years is correct," UES CEO Anatoly Chubais said at a news conference.

Shares in OGK-5 sold at 9 cents each, near the high end of estimates of 7.6 cents to 9.5 cents. UES sold 5.1 billion shares through an additional share offering.

Chubais said no individual investor would get more than 1.1 percent, apparently putting to rest fears that state-run Gazprom would take on a large stake in OGK-5.

Rival bidders said earlier that Gazprombank had bid for the entire 14.4 percent and expressed concern that Chubais might sell out on the key plank of his reform program -- to place generation companies in private hands in an effort to boost competition and efficiency.

Chubais said a group of strategic investors would together get no more than 5 percent and the remaining 9.4 percent would go to a group of financial and portfolio investors.

The sale has been closely watched to see if private investors or state-connected companies would grab the largest stake.

Chubais declined to name the bidders and said the buyers would be announced after the shares began trading on the RTS and MICEX on Nov. 10.

The European Bank for Reconstruction and Development, or EBRD, was the only buyer to step forward publicly.

"The bank is proud of this commitment to the most far-reaching reform undertaken so far in the new Russia," EBRD chief Jean Lemierre said in a statement.

EBRD spokesman Richard Wallis said the EBRD had gotten about 1 percent, adding that "we did ask for more, but it wasn't an enormous amount."

David Herne, managing director of Halcyon Advisors and a member of the UES board, said the sale had attracted some unexpected buyers.

Halcyon, which already held a minority stake in OGK-5, bid for a further 300 million shares, he said.

Herne said he believed Gazprombank, Vneshekonombank and Italy's ENEL had also bid and that Gazprombank had indeed tried to buy the entire 14.4 percent.

Spokespeople at the three companies declined to comment.

"We are very pleased that Chubais has won this battle to make sure it was a transparent and fair process," the EBRD's Wallis said in response to the Gazprombank bid. "This is very good for the investment climate."

OGK-5 is the first in a series of sales planned by UES to raise $81 billion to restructure the company.

UES urgently needs the funds to upgrade its aging infrastructure and improve efficiency at power plants, as capacity and fuel supplies run dangerously low.

"Russia's electricity is in a deficit," Chubais said Tuesday. "This is the only path -- reform and investment. This problem can only be resolved strategically."

Investors hailed the share sale as highly successful, bringing in enough offers to be 8.6 times oversubscribed.

"It clearly looks like a success," Herne said.

"We believe the investment projects which OGK-5 is now likely to undertake should deliver satisfactory results," Aton said in a research note, adding that the company's projects were "among the best in the market."

Chubais said the offering was "absolutely fundamental" if the country is to overcome what have become chronic fears of wintertime electricity shortages.

"If there was no reform of the kind we saw today, this country would be taking a huge step toward catastrophe," he said.

"Imagine if we didn't have this offering, imagine if we didn't carry out reforms -- where would the money come from?"

Chubais has said the country could face power cuts this winter, with gas supplies and electricity capacity running dangerously low.

Last week, Gazprom -- which supplies the bulk of UES' gas -- acknowledged fuel supplies were running low and called on the government to act quickly to avert cutbacks.

"We understand we are being watched as an indicator" for future reform, OGK-5 chief Anatoly Bushin said at the news conference.

UES has long been seeking to spin off its generation, distribution and sales businesses, but the state has stepped in to delay reform efforts. Observers say real reform of the sector -- and accompanying higher electricity prices -- will begin only after the presidential election in 2008.