Source: EnergyO Solutions Russia AB
· Result of a review of EOS Russia’s investment case by the company’s Board of
· New synthetic buyback program to a maximum of 29.9 per cent of all
outstanding shares in the company to start on 27 February 2013
· The annual general meeting will be held on 10 April 2013 at the conference
centre 7A, Strandvägen 7A at 11.00 a.m. CET.
EOS Russia’s portfolio is now very heavily concentrated in Russian electricity
distribution companies, MRSKs, with the aim of benefiting from the on-going
launch of the RAB regulation system and, above all, from the expected
privatizations of MRSKs.
The bulk of EOS Russia’s investment in the electricity distribution sector is
divided between four different MRSKs (MRSK Volga, MRSK Center-Volga, MRSK North
-West and MRSK Urals), in which it now holds 6.3-16.4 per cent stakes. EOS
Russia believes that there will be opportunities to form larger divestment
alliances with other market players. In the case of several MRSKs, the combined
shareholding of participants in such alliances may be a blocking stake (more
than 25 per cent of the voting shares).
EOS Russia has divested several 1-2 per cent stakes in TGKs and other Russian
electricity companies over the past 1-3 years. Some of these sales were priced
at a premium of 20-35 per cent relative to market share prices on the day of the
transactions, some of which were carried out with the help of similar divestment
The privatization of the MRSKs is likely to create a unique divestment
opportunity. This expectation is based on the experience of electricity
distribution privatizations in other emerging market countries, the mass
privatization of Russian generation companies (OGK/TGK) in 2007-08 and the
already visible indications of interest in the MRSKs from potential strategic
investors. EOS Russia therefore believes that MRSK privatizations are likely to
attract significant strategic interest, both foreign and Russian.
The current average valuation of those EOS Russia holdings that already have all
their distribution assets under the RAB is 0.44x EV/RAB ratio (Enterprise Value
to Regulated Asset Base Value). This compares with an estimated average
valuation of their emerging market peers at around 1.7x EV/RAB ratio (valuation
date: 12 February 2013), implying significant potential upside.
The RAB system for MRSKs was re-launched from 1 January 2013. More than 86 per
cent of the sub branches of EOS Russia’s five largest holdings are already
functioning under the RAB system. It is expected that the remaining non-RAB
assets will join the RAB, in some cases during the current year.
The RAB system implies significant earnings growth. For instance, guidance
published by MRSK Center-Volga implies an increase in net profit from US$63
million in 2012 to US$222 million in 2016 (source: MRSK Center-Volga
presentation as of December 2012, currency translation to USD at USD/RUB 30.15).
On top of the predicted earnings growth, the RAB system includes a cost-cutting
formula that allows the companies to retain the higher net income resulting from
cost cuts exceeding the expected level during the 5-year regulatory period.
Experience from other countries indicates that this may allow an efficient owner
to multiply the target returns set by the regulator. This is also the reason why
distribution companies tend to trade significantly above 1x EV/RAB around the
It is also worth noting in this context that in November 2012, Prime Minister
Dmitry Medvedev signed a government resolution on the dividend policy of state
-owned enterprises mandating, as a norm, dividend payouts of 25 per cent of net
While EOS Russia expects that most acquirers of privatized majority stakes in
MRSKs would make offers to buy out minority shareholders, especially if the
buyer is a foreign company, it also believes that there may be several
situations when it will make sense to strike separate divestment deals with the
Russian government officials have stated publicly that 1-2 pilot MRSK
privatization projects are planned to be started this year. Based on experience
from completed privatizations in other emerging markets and from the
privatization of Russian generation companies in 2007-08, it is reasonable to
expect that such pilot projects will be followed by further privatizations.
The period since 2011 has seen significant progress in the implementation of the
RAB system in Russia and preparing the ground for the privatization of the
MRSKs. EOS Russia has contributed to this process and will continue this work
also going forward.
The intention of EOS Russia is to return the generated divestment proceeds to
its shareholders via share buybacks and/or other mechanisms after the
divestments have taken place.
Synthetic share buyback
The Board noted that in the event of the above-mentioned potential for
advantageous divestments of EOS Russia’s holdings in various MRSKs being
realized, the proceeds would create a favourable foundation for completing the
synthetic buyback of the company’s own shares.
The cancellation of 13,454,658 shares repurchased under the first synthetic
buyback program has been completed. The new number of outstanding shares in EOS
Russia AB is 43,218,519. As a result, EOS Russia holds no own shares and
currently has no swap positions (synthetic positions) relating to shares in EOS
The Board of Directors has resolved to utilize the synthetic buyback
authorization given by the extraordinary general meeting on 6 February 2013,
starting on 27 February 2013. For this purpose, a swap agreement has been
entered into with SEB AB. The initial period in which buybacks of the company’s
own shares may take place will end on 22 March 2013 in order to enable
redemption of such synthetic repurchased shares at the annual general meeting.
Information regarding purchases during the previous trading day will be
communicated at 8:45 CET Monday-Friday, on EOS Russia’s web site and through
subscription to EOS Russia’s NAV-information (please visit http://www.eos
-russia.com/display?id=79 to subscribe).
Stockholm, 26 February 2013
EnergyO Solutions Russia AB (publ)
SEB Equities contact information:
Tel: +46 8 5222 9917
For further information, please contact: email@example.com
EOS Russia is an investment company headquartered in Stockholm. The overall
objective of the company is to offer attractive returns via investments in the
Russian electricity industry. EOS Russia's shares have been listed on First
North, a marketplace operated by the Stockholm Stock Exchange, since 25 June
2007. Remium Nordic AB is the Certified Adviser.