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. Last Updated: 07/27/2016

Vekselberg Raises TGK-5 Stake

Oil and metals magnate Viktor Vekselberg has paid about $400 million to bring his stake in power generator TGK-5 to 40 percent and offered to buy out remaining shareholders, his firm said on Monday.

Territorial Generating Company, or TGK No. 5 is being spun off from the former power monopoly Unified Energy Systems, together with other power distributors, as part of broader industry reforms to introduce competition.

Vekselberg's purchase of shares brings him closer to control of the firm and sets the pace for a slew of future sales expected in power sector reforms.

TGK-5 said in a regulatory statement Monday that its board had accepted an offer from Vekselberg's vehicle, KES, to buy 79 percent of the new issue after existing shareholders exercised their pre-emptive rights for only 21 percent of the new issue.

The new share issue amounted to about $450 million, which means Vekselberg paid around $400 million plus an additional sum of money to exercise his pre-emptive right, awarded because KES was already a minority shareholder in TGK-5 before the issue.

"The company will be able to win full control after TGK-5 is fully spun off from UES," KES chief Mikhail Slobodin told reporters.

Under the so-called dual-track sale, TGK-5 is due first to proceed with a new share issue, and then UES will sell some shares in the firm.

The partial privatization of UES is meant to help raise new funds to modernize aging equipment and meet growing demand for electricity amid Russia's economic growth.

The reforms envisions breaking up the state-controlled industry into separate private and semi-private generation and distribution firms and a state-controlled grid.

Alexander Chikunov, head of TGK-5's first business unit, told a briefing that KES had paid $501 per kilowatt-hour of installed capacity, thus setting the pace for sales of other TGKs.

TGK-5 is the second power generator to be sold to a strategic investor, following UES's sale of control in OGK-3 to metals giant Norilsk Nickel for $3.1 billion in March. OGK-3 was sold for about $600 per kilowatt-hour of generation capacity, but as OGKs -- a Russian acronym for "wholesale generating company" -- are usually bigger than TGKs, market players were looking at TGK-5 as the first pricing guidance.

By winning control in TGK-5, Vekselberg will get access to thermal plants in the regions of Marii-El, Chuvashia and Udmurtia on the Volga River.

n United Company RusAl, Novatek, Germany's E.On and Italy's Enel have placed bids for a stake in power generator OGK-5, market sources said Monday. "I am 90 percent sure there will be no more bids," a source said. The deadline for submission of bids expired at 5 p.m. Monday.