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. Last Updated: 07/27/2016

LUKoil-Linked Firm Buys Stake in TGK-8

IFD Capital, an investment vehicle of billionaire shareholders in oil major LUKoil, has paid $1.7 billion to buy a stake in utility TGK-8 -- a step that will likely give it control of the firm.

Alexander Chikunov, the managing director of national utility Unified Energy System, on Thursday called the sale an "extreme success," adding that the sale price of 3.5 kopeks per share was equal to $613 per kilowatt of TGK-8's installed capacity.

IFD Capital is controlled by LUKoil's top shareholders, its president, Vagit Alekperov, and vice president, Leonid Fedun.

"We've become convinced that regardless of any financial crisis, investors are still interested in buying electricity assets," Chikunov told a news conference.

The average valuation for the country's territorial generating companies, known as TGKs, is about $475 per kilowatt of capacity.

"We believe the premium we paid is right and reflects the same premium, even a slightly smaller one, than we would have paid elsewhere," the chairman of IFD Capital, Olga Plaksina, told the news conference.

IFD Capital is placing a $1.25 billion convertible bond to finance the buy, she said.

Although it was the minimum price UES was willing to accept, IFD Capital's offer was 20 percent higher than the market price on Oct. 17, when the bid was placed.

Combined with two other firms that have been linked to IFD Capital -- Promenergoholding and Energostrategy -- the group already owned roughly 30 percent of TGK-8.

But Plaksina denied that IFD Capital owned these companies or their shares in TGK-8. "We are in talks with them to get these shares, but we do not know how these talks will end," she said.

With 3.6 gigawatts of generating capacity and 18 power stations, TGK-8 provides electricity and heat to six southern regions, where LUKoil has big expansion plans.

TGK-8 also services Sochi, the site of the 2014 Winter Olympics, which are expected to boost demand for power in the region for years to come.

UES' stake in TGK-8 will now be reduced to 11 percent, which Chikunov said it would sell in the coming months.

UES is in the process of selling off all of its assets in order to raise money for an overhaul of the power sector, which is being opened up to free competition for the first time.

IFD Capital purchased the entire secondary offering of 685 billion TGK-8 shares, and the entire government stake of 492 billion shares, which UES auctioned off at the same time as the share sale.

IFD's stake would now equal more than 50 percent of the company, Chikunov said, declining to give the exact figure.

Plaksina said IFD had already received approval from the Federal Anti-Monopoly Service to purchase 100 percent of TGK-8.

TGK-8 general director Viktor Gvozdyov said his firm would depend in part on associated gas from LUKoil but that most of the company's fuel would come from regional subsidiaries of Gazprom.