29 Nov 2010 16:57

Yangtze Power to buy $168 mln in EuroSibEnergo shares in delayed IPO - sources

MOSCOW. Nov 29 (Interfax) - Chinese Yangtze Power will become a cornerstone investor in EuroSibEnergo, a member of the En+ Group, which runs the power sector assets of Oleg Deripaska's Basic Element, by purchasing $168 million in shares in the company's IPO, now expected early next year, a source familiar with preparations for the IPO told Interfax.

Yangtze Power needs Chinese government approval to participate in the IPO, which it expects to receive in the beginning of 2011, after which the shares will be placed.

Reports say EuroSibEnergo plans to raise $1.5 billion by selling 25% of its shares in an IPO. Deutsche Bank, Bank of China International and VTB Capital are arranging the IPO and value the company at between $4 billion and $5.6 billion.

It was expected that the bid book would close on December 10 and that pricing would take place on December 13. The source said the key consideration for EuroSibEnergo was to enable Yangtze Power to buy into the offering, and that the timing of the IPO would depend on the timing of the Chinese government's decision to allow Yangtze to subscribe.

But financial market sources told Interfax that the IPO was being put back not only because a cornerstone investor had emerged, but also because market demand for the IPO was lacking. "There was no demand even at the lower range" during marketing," one source said.

"There wasn't formally any price range. The organizers only asked investors whether they wanted to buy based on a valuation of $3.5 billion [for the whole company]," the source said.

"We realized right away that the reason for delaying the IPO was not the appearance of a cornerstone investor but low demand on the market," another source said, confirming that the organizers had shown the investors the $3.5-billion valuation at the lower end.

En+ Group and EuroSibEnergo declined to comment.

EuroSibEnergo and Yangtze Power have, though, announced a strategic partnership. They said in Monday that they were forming a 50/50 joint venture to build power plants in Russia's Far East and Siberia and would supply some of their electricity to China.

The companies have identified six potential projects in Russia and could build up to 10 gigawatts of generating capacity. Feasibility studies for the projects should be ready within three years.

Yangtze Power will try and raise funding from Chinese banks and export agencies on project finance terms.

EuroSibEnergo and Yangtze Power also agreed to "cooperate in equipment supplies and the exchange of know-how.

EuroSibEnergo became a platform to consolidate Oleg Deripaska's power and engineering business in 2009.

Its biggest assets are controlling stakes in Irkutskenergo , which includes coal producer Vostsibugol; Krasnoyarsk Hydro; and a number of sales and engineering companies. EuroSibEnergo controls 14 power plants with installed capacity of 19.5 gigawatts - more than 15 gigawatts of this at hydro-plants - and coal deposits with reserves of approximately 1.29 billion tonnes of coal. EuroSibEnergo has a Russian electricity market share or approximately 9%.