OREANDA-NEWS. May 28, 2010. Federal Grid Company has cancelled a deal with Integrated Energy Systems (IES) for the purchase of a 23.6% stake in TGK-6 and a 32.2% stake in TGK-7 (Volga TGK). The stakes were transferred to FGC during the restructuring of RAO UES. IES won an auction for these stakes in 2008, but was allowed to delay payment until October 2009, reported the press-centre of OTKRITIE Financial Corporation.

In the meantime, IES decided to nix the deal as the market prices of TGK-6 and TGK-7 have dropped significantly below the initial auction prices. IES has paid a total of RUB2bn to FGC (10% of this were fines delaying payment), and will receive a 2.2% stake in TGK-7. FGC will retain the remaining stakes.

View: After cancelling the purchase, FGC remains the holder of 29.99% stake in TGK-7 and a 23.6% stake in TGK-6. IES owns 39.8% and 38.4% stakes in these gencos, respectively. We believe that FGC will retain these stakes until 1Q11, and then exchange them for InterRAO shares.   InterRAO has targeted FGC’s stakes in TGK-6 and TGK-7 as part of its planned assets swap with the state. Clarity regarding the deal with IES is positive development for FGC, TGK-6 and TGK-7. That said, we see no immediate impact on the valuations of the three companies from this news.

Valuation: FGC trades at an EV/RAB of 0.6x, versus an international peer average of 1.2x.

Action: We view the news neutrally for FGC’s shares.