Gazprom Power Unit Seeks to Boost Value in Planned 2015 IPO

OAO Gazprom’s power unit plans an initial public offering in late 2014 or early 2015 as new plants boost revenue.

“‘We haven’t changed our plans on an IPO,” Denis Fedorov, the head of the division, told reporters today in Moscow. Revenue and profit “should rise significantly.”

Gazprom Energoholding, as the unit is known, plans to complete commitments by its three generating companies to fund construction of new capacity by the time of the IPO, raising the value of the holding company, he said.

The Russian gas exporter’s generators, OAO OGK-2, OAO Mosenergo and OAO TGK-1, together make the biggest Russian electricity producer, accounting for about 17 percent of total generation. The company is investing 80 billion rubles ($2.45 billion) from 2012 through 2014 to fulfill obligations to build new power plants.

The biggest generator, OGK-2, declined 44 percent year-to-date, followed by TGK-1 with a 26 percent decline and Mosenergo with a 19 percent.

“Should the market situation be favorable and Gazprom make a decision on the IPO, we will be able to return a significant part of investments and pay quite big dividends from 2015 or 2016,” Fedorov said today.

Investment Program

Gazprom will spend 20 billion rubles to buy OGK-2’s new shares to be issued to fund the investment program, Fedorov said. Pricing for OGK-2’s new share issue will be determined in September, Sergei Fil, head of corporate development, said at the same briefing.

OGK-2 shares have been depressed as first-quarter net income slumped 81 percent and revenue declined 9.7 percent in the first quarter. Last year, net profit also fell.

Fedorov attributed the results to a high debt burden and lost revenue from the Troitskaya power plant after an accident at two power units last year halted operations for about six months.

OGK-2’s ratio of net debt to earning before interest, tax, debt and amortization rose to 8.75 as of March 31, compared with 5.49 a year earlier, according to a presentation on first-quarter results on website.

“Our debt level plays a big role, it’s the maximum we can bear,” Fedorov said. “But we don’t shun our responsibility and think we will be able to significantly improve our situation next year.”

Boost Revenue

Gazprom Energoholding expects its generators to almost double boost revenue and increase earnings before income, tax, and depreciation 3.5 times by 2017, compared with 2011, according to Fedorov’s presentation today. New capacity will generate as much as 80 percent of revenue.

Gazprom’s hasn’t yet made a decision on Gazprom Energoholding’s IPO, which will depend on the situation in the financial market, Fedorov said.

Fedorov also said he boosted his stake in OGK-2 this week, paying about $100,000. He plans to take part in the OGK-2 new share issue and keep the stake “at least” at the current level.

Gazprom, which identified power as one of its core business lines, has selected “concrete” stations outside Russia for expansion and is now analyzing investments, Fedorov said. The company also targets power plants in Turkey, the Balkans, Italy, the U.K. and Germany, he said.

The company is also continuing talks with billionaire Viktor Vekselberg’s Renova Group on merger of power assets.

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