OREANDA-NEWS. February 17, 2010. Power Machines’ purchase of Kaluga Turbine Plant’s (KTZ) additional share issue at 2.3x the current market price of the shares is good news for KTZ minority shareholders. The proceeds will finance the company’s investment program, enabling it to build up production capacity on the expectation that demand for power generation equipment will recover.

It was reported on February 16 that Kaluga Turbine Plant has floated an additional share issue for the benefit of Power Machines. The share issue got the backing of a general shareholders meeting in March 2009. The issue consists of 160,368 shares and has an emission price of RUB 4,870 (USD 160) per share. The proceeds will go towards financing the company’s RUB 1.2 billion (USD 39.7 million) production expansion program in 2009-2012.

We estimate the news as positive for KTZ minority shareholders. The additional shares were bought out at 2.3x their current market price. The share issue was equal to 31% of the company’s common stock. Following the placement, Power Machines has brought its total holding in the company from 55.5% to 66%, which, however, gives it no additional rights or opportunities. We also have a positive outlook for the company’s production expansion program as this should enable it to keep pace with demand for power generation equipment, which is expected to pick up as the economy recovers. According to the Russian Energy Strategy, the overall investment program for Russian generation companies should have a total budget of over USD 80 billion for the period up to 2015.

With account for the additional shares placed, our target price for one common share in KTZ is USD 200, with an upside potential of 186% and a BUY rating. The target price per preferred share is USD 105.