OREANDA-NEWS. June 08, 2010. INTER RAO intends to borrow RUB10bn each from three state-owned banks-- Sberbank, VTB and Bank Rossiya - at an interest rate below 12%. According to the company, these funds will be used to finance current activities. The loan needs to be approved by INTER RAO shareholders at the AGM on 25 June, reported the press-centre of OTKRITIE Financial Corporation.

View: We estimate the size of the investment program of InterRAO’s assets (excluding OGK-1 and TGK-11) at about RUB22bn in 2010-2011. According to our estimates, the company’s operating cash flow for this period will amount to RUB15bn. We believe this funding is excessive for the financing of the company’s current investment program, and think that the additional funds will most likely be used to finance M&A activity. We expect INTER RAO’s management to present a long-term strategy for the company this summer, which should shed more light on the company’s expansion plans.

Valuation: INTER RAO trades at an EV/installed capacity multiple of USD186/kW and on a 2011E EV/EBITDA of 4.5x, taking into account the assets of OGK-1 and TGK-11. The corresponding figures for Russian TGKs are USD233/kW and 3.5x.

Action: We do not expect significant market impact from this news, and reiterate our cautious view on INTER RAO’s future development plans.