OREANDA-NEWS. September 22, 2010. According to a protocol from a meeting with First Deputy PM Igor Shuvalov, by year’s end the government plans to auction off a 20% stake in NCSP and a 100% stake of SG-Trans, Russia's largest rail carrier of liquefied natural gas. These assets will be sold separately, but the packets will not be split. The state plans to retain a ‘golden share’ in NCSP.

View: We believe that it is a good time to sell  shares in transport sector companies, as cargo turnover in ports and rail transportation are gaining momentum. In view of the impending deal for a controlling stake in NCSP by Transneft and Summa Capital, one of these companies will likely buy the 20% government stake. (We believe it will be Transneft). The resulting increase in Transneft’s stake could be considered negative for minority shareholders, as it could undermine corporate governance in the company. It is also worth noting that the purchase of the government stake would boost Transneft’s share above the 30% mark, which is the legal prerequisite for making a mandatory buyout offer for minorities. At present, we see the news as neutral, awaiting details of the transaction price between current shareholders and Transneft and Summa Capital, as well as on the price and timeframe for the state-owned stake.

Valuation: NCSP stock trades at about a 41% discount to global peers on a 2010 EV/EBITDA. In our view, this discount incorporates the risks of an unfavorable PCP valuation.