OREANDA-NEWS. March 19, 2010. According to a Sintez group representative, TGK-2 (RTS: TGKB) may conduct an additional share issue to raise RUB 15 billion for the construction of the Kudepstinskaya heat and power plant in Sochi. The project has been included in the genco’s mandatory investment program and is to be fixed in a capacity supply agreement.

In our view, the statement will invoke a negative response from the market, given that the amount to be raised from the issue is practically equivalent to the company’s current market capitalization. As a consequence, minority shareholdings could be substantially diluted. The minimal emission price cannot be lower than the par value of the shares, which stands at RUB 0.01 for common shares. The minimum admissible price is more than 10% above the genco’s current stock valuations. The company plans to float at least 1.5 trillion common shares, and, as a result the current minority shareholdings would be more than halved. We doubt, however, that additional shares will be in demand with investors, given that the company has problems with the quality of corporate governance and its additional shares will be placed at an above-market price. Given this, the additional share issue will likely be picked up by Sintez Group, a TGK-2 majority shareholder.