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. Last Updated: 07/27/2016

Norilsk Says It Will Spin Off Power Firm

Norilsk Nickel on Monday laid out its plans to dominate the power sector, announcing it would spin off a $6.7 billion electricity company by the end of the year to create what could become the market's leading player.

The new company, Norilsk Power, could be registered as early as Dec. 21, with ownership distributed proportionately among Norilsk Nickel's existing shareholders, CEO Denis Morozov said during a conference call.

The core asset of the new company will be Norilsk's controlling stake in generating company OGK-3.

This month's deal to acquire 17.8 billion shares of OGK-3 for $3.1 billion was also wrapped up Monday, taking Norilsk's stake in the generating company from 13.9 percent to 46.2 percent, just shy of control, Morozov said.

Having purchased such a large stake, Norilsk is now obligated by law to offer to buy out OGK-3 minority shareholders that jointly hold 16.7 percent of the company. Norilsk will offer the premium price of 17.3 cents per share, 4.7 percent higher than the price of the stock on the RTS exchange Monday.

If all the minority stakeholders accept the offer, which will expire in July, Norilsk's stake in OGK-3 could reach 62.9 percent. State utility Unified Energy Systems holds the remaining 37.1 percent.

"But just from buying up shares on the open market, we can expect Norilsk to get control of OGK-3 by the end of this week," said Simon Birg, electricity analyst at Finam brokerage.

Acquiring more generating assets will be the "first priority" of Norilsk's new power company, said Dmitry Usanov, head of investor relations at Norilsk.

Analysts expect Norilsk Power to go toe-to-toe with Gazprom in snapping up the country's choicest power producers, which are being spun off from UES to help fund $120 billion in upgrades needed to bring the country's power supply in line with surging demand.

Gazprom's energy holdings are valued at about $10 billion, Birg said, adding that Norilsk's holdings would reach this value by year's end.

Mikhail Prokhorov, who stepped down as CEO of Norilsk Nickel earlier this month, is widely expected to head the new power company. He said upon resigning that his eye was on the electricity business. Usanov and Morozov, who replaced Prokhorov, both declined to comment on who would manage the new company.

Birg said the competition between Norilsk Power and Gazprom would be stiff, and that Gazprom's lobbying power as a state-held company would give it a major advantage.

"This is, of course, worrisome, but with the behemoth being built on the basis of Gazprom's assets, a private firm like Prokhorov's will give the market some balance."