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. Last Updated: 07/27/2016

Power Fund to List in London

bloombergBranis in his Moscow office. He is seeking to invest more in generation firms.
Prosperity Capital said Monday that it was seeking to raise at least $200 million this year in a London listing for New Russian Generation, a power-focused fund that is well positioned to take advantage of the liberalization process in Russia's electricity industry.

"We are raising capital to ... participate in the upcoming privatizations of three core generation companies where we have invested," Prosperity CEO Alexander Branis said Monday.

New Russian Generation, whose power industry portfolio is worth approximately $1.6 billion, has a 27 percent stake in thermal and power generation company TGK-2, and 19 percent stakes in both TGK-4 and TGK-6.

The investment firm, which was created earlier this year through the merger of two Prosperity funds, also has stakes in a number of electricity distribution companies, which are currently in the process of being rolled into two distribution companies, MRSK Center and MRSK Volga-Center.

The fund plans to take part in the upcoming privatizations of the territorial generating companies, expected to take place by early 2008, as state-owned Unified Energy System spins off its electricity assets to attract much-needed investment and competition to the sector.

"We are definitely looking to increase our investments in the sector because we believe that Russian generation assets are still [undervalued] compared to international benchmarks," Branis said. "Once these companies are privatized, they will be able to operate much more efficiently and they will be able to cut costs."

Prosperity is currently in talks with a number of European strategic investors to form an alliance in bidding for the assets, Branis said. Some of these have not yet publicly expressed their interest in the Russian power sector.

Branis said a foreign partner would bring with it valuable experience of restructuring similar assets abroad. He added that the size of the fund's stake would depend on a number of factors, ranging from the nature of the partnerships to the competition they would face in the tenders. The fund's free float will be at least 25 percent, but Branis said the exact number of shares to be offered had not yet been established.

Analysts say the fund would provide an attractive entry route for portfolio investors seeking exposure to UES's privatization process. Alexander Kornilov, a utilities analyst at Alfa Bank, said the listing would be likely to pull in "significant interest" from portfolio investors.

But he added that generation assets were now a largely "played-out" story, with the sector offering relatively little upside for short-term investors. Most of the interest so far in the generation privatizations has come from strategic investors, both Russian and foreign.

Nevertheless, a number of funds are targeting minority investments specifically in the power sector, including an investment vehicle recently set up by former UES managers.

UES recently cited tougher market conditions for delaying an offering for OGK-6 just weeks after OGK-2's listing in London failed to achieve the upper end of its price range. Gazprom is to gain a controlling stake in both utilities through share swap deals, a factor that has deterred strategic investors.

The share sale, which took place amid depressed market conditions, also failed to pull in substantial portfolio investor interest, however.

"OGK-2 ... showed from a financial investor's [point of view] that Russian generation is not really that attractive," said Sergei Beyden, utilities analyst at Dresdner Kleinwort Wasserstein.

UES is due to be wound up by July 2008.