OREANDA-NEWS. May 29, 2007. The Board of Directors of OAO "TGC-5"* approved the sale of the company's new shares to OOO "KES-Holding", a strategic investor, and accepted the latter's subscription to 260,512,857,721 new ordinary shares, RUB0.01 each, which makes 21 percent of the company's capital after the placement. Taking into account the exercise of its pre-emptive right, OOO "KES Holding" will acquire 325,735,446,707 additional shares, which makes 26.5 percent of the authorized capital of OAO "TGC-5".

OAO "TGC-5" will issue 329,734,150,582 ordinary shares, RUB0.01 par value each (36.62 percent of TGC-5 capital prior to the offering and 26.8 percent of TGC-5 capital after the offering).**

In the offering process, the company employed the dual track system, which envisages simultaneous measures aimed at selling shares only to strategic investors, or to both strategic and financial investors. The choice between the placement options is made at later stages of the process, depending on which of the alternatives appears to be in the best interests of the generation company.

Strategic and portfolio investors showed a strong appetite for the new shares. The bids for the entire issue were received from a number of Russia's major companies.

On 7 May 2007, having reviewed the recommendations provided by the investment banks Morgan Stanley & Co. Ltd. and CIT Finance Investment Bank (OAO) and taking into account the offering pre-marketing among international and Russian portfolio investors and the bids received from strategic investors, the Board of Directors of OAO "TGC-5" determined the price for its new shares.

The shares will be sold at 3.5283 kopeks per share, including for the persons entitled to the pre-emptive right to purchase such shares. If the entire share issue is sold at the price set by the Board of Directors, the issue proceeds will amount to RUB11,634 million, or USD435 million.

The existing shareholders of OAO "TGC-5" purchased 69,221,292,861 shares under the pre-emptive right, which makes 20.99 percent of the total number of shares on offer. As RAO "UES of Russia" waived its pre-emptive right to acquire the TGC-5 shares, the stake held by RAO "UES of Russia" in TGC-5 after the offering will decline to 47.45 percent from 64.83 percent.

TGC-5 will use the proceeds from the new share offering to finance the key projects to build combined-cycle power units at the Izhevskaya CHPP-1, Kirovskaya CHPP-1, Kirovo-Chepetskaya CHPP-3, Sarapulskaya CHPP with a combined capacity of 400 MW, and to upgrade the power plants' primary equipment in order to improve the efficiency of burning solid fuels.

Before the offering, the potential investors signed investment Memorandums of Understanding with RAO "UES of Russia", thus demonstrating their commitment to the TGC-5 investment programme. These MoUs are one of the mechanisms designed to control the use of the offering proceeds for investment purposes. They set forth the goals and parameters of the investment programme approved for TGC-5, including the timeframe and amount of the generation capacity to be brought on line. Within three months after the new share issue by TGC-5, RAO "UES of Russia" and OOO "KES-Holding" will sign an Investment Agreement which will govern the company management issues relating to the implementation of its investment programme.

As provided by the resolutions of the Board of Directors of RAO "UES of Russia" of 30 August 2006 and the EGM of RAO "UES of Russia" of 6 December 2006, respectively, and the EGM of OAO "TGC-5" held on 19 April 2007, RAO "UES of Russia" will divest TGC-5 (along with WGC-5) during the first phase of the Parent Company's reorganization. TGC-5 will become a private generation company, with the state holding a blocking stake.
TGC-5 was the first territorial generation company created in the course of the electricity reform to have issued additional shares through open subscription. Before that, public offerings were implemented by two WGCs—WGC-3 and WGC-5—which raised, in the aggregate, over USD3.6 billion in investments last autumn and this spring, respectively.