OREANDA-NEWS. September 01, 2010. The Federal Antimonopoly Service granted a permission for INTER RAO to manage a stake in TGK-7 (Volga TGK) above 25%, though it must meet one of two conditions aimed at averting disruption of the competition in the regions, reported the press-centre of OTKRITIE Financial Corporation:

Sell 2,513MW of the company’s generation capacity (1,034MW in Europe-Urals price zone and 1,479MW in Siberian price zone), representing 37% of TGK-7’s total installed capacity; or

Minimize the fuel costs – hence the electricity output price – on each of the company’s power plants, and send monthly reports to the regulator.

INTER RAO intends to obtain the state’s 32% stake in TGK-7 in the assets swap planned for 1Q11.

View: Integrated Energy Systems (IES) now holds a 37.6% stake in TGK-7. Previously, it aimed to purchase the state’s stake as well to gain a controlling stake in the genco. However, IES recently said that it may not include TGK-7 into the consolidation of IES Holding, a process that will include TGK-5, -6 and -9. We believe there is an ongoing shareholder evolution in TGK-7, which has been the main driver for the company’s stock on the market (+58% since the beginning of June). We read the news as an indication that INTER RAO is poised to become the controlling shareholder in TGK-7, with shareholder change close to completion.

Valuation: TGK-7 trades at an EV/installed capacity of USD346/kW versus the TGK average of USD256/kW.

Action: We expect TGK-7 stock to collapse in the near future and reafirm our SELL rating.