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Federal Grid Company (FEEA)

Federal Grid Company

Proposed Restructuring of Russian Grids & FGC UES
RNS Number : 7797B
JSC Fed Grid Co of Unified Engy Sys
08 April 2013




Proposed Restructuring of

JSC Russian Grids




8 April 2013. Moscow, Russia. - The Board of Directors (the Board) of JSC Russian Grids (LSE: MRSK), formerly known as JSC IDGC Holding or MRSK Holding (the Company or Russian Grids), announces its resolutions on the proposed restructuring of the Company and Federal Grid Company of Unified Energy System, Joint Stock Company (LSE: FEES) (Federal Grid Company) (the Proposed Restructuring).


The Proposed Restructuring will be implemented through a contribution of ordinary shares of the Federal Grid Company to the Company's share capital. The Company's controlling shareholder, the Russian Federation, acting through the Russian Federal Agency for State Property Management (the Agency) will exchange ordinary shares in Federal Grid Company owned by it less at least one ordinary share for new shares of the Company. As a result, Federal Grid Company will, upon completion of the Proposed Restructuring, become a subsidiary of the Company.


The Proposed Restructuring is subject to Company shareholder approval at an extraordinary general meeting of shareholders of the Company to be held by absentee vote on 6 May 2013 (the EGM).


It is expected that after the Proposed Restructuring ordinary shares of the Company will continue to be listed and traded on the Moscow Exchange, and that ordinary shares of Federal Grid Company will also continue to be listed and traded on the Moscow Exchange (provided that there remains a sufficient public float of the Federal Grid Company ordinary shares after the Proposed Restructuring).


Global depositary receipts (GDRs) representing ordinary shares in the Company and GDRs representing ordinary shares in the Federal Grid Company are also currently listed on the official list (Official List) of the Financial Conduct Authority and admitted to trading on the regulated market of the London Stock Exchange plc (LSE) through its international order book. Following the Proposed Restructuring, it is expected that GDRs representing ordinary shares in the Company and GDRs representing ordinary shares in the Federal Grid Company will continue to be listed on the Official List and traded on the LSE (provided that there will remain a sufficient public float of the Federal Grid Company GDRs after the Proposed Restructuring).


The Proposed Restructuring: Background and Rationale


In 2008 a fundamental reform of the Russian electricity sector was completed. As part of the reform, the distribution lines of the Russian electricity grid network were transferred to the subsidiaries of the Company whereas the transmissions lines were transferred to the Federal Grid Company.


In order to further the development of the Russian electric grid sector, coordinate work on the management of the electric grid sector, and keep down tariffs for ultimate electricity consumers, the President of the Russian Federation issued presidential decree No. 1567 "On Open Joint Stock Company Russian Grids" dated 22 November 2012 (the Decree). The Decree contemplates, among other things, that the Government of the Russian Federation as the principal shareholder of both Russian Grids and Federal Grid Company will contribute to the authorised capital of Russian Grids its shareholding in the Federal Grid Company, as payment for additional shares in Russian Grids acquired by the Russian Federation as part of an increase in the authorised share capital of Russian Grids. The Decree also contemplates that the Russian Federation will retain a stake of at least one share in the issued share capital of the Federal Grid Company.


The Proposed Restructuring will bring together the largest Russian electricity transmission and the largest Russian electricity distribution company with complementary strategies and service lines. It is expected that the Proposed Restructuring will:


·   represent an opportunity for both companies to realise administrative and operational efficiencies by combining their complementary managerial functions, assets and businesses;


·   result in the establishment ofone of the largest electricity grid companies in the world in terms of network spread, transmission volumes and the number of customers;


·   allow the creation of a common decision-making and responsibility center in the Russian electricity grid segment, and improve sector manageability through coordination between distribution grid companies and the United National (All-Russian) Electricity Grid operator;


·   enable Federal Grid Company to focus on its operations to increase its efficiency, the quality of customer service, and the grid reliability;


·   facilitate increasing efficiency of investment by both companies through a systemic approach to grids infrastructure development; and


·   assure efficient delivery of research and development programmes and systemic implementation of innovative technologies across the industry.


Overview of the Proposed Restructuring

Description of the proposed share issuance


The Proposed Restructuring will be implemented by means of an issuance of up to 161,066,440,775new ordinary shares of the Company (the Subscription Shares). The Subscription Shares will, in accordance with Russian law, be offered on a pre-emptive basis to existing shareholders of the Company pro rata to their holdings of shares in the Company on 29 March 2013 (the Record Date). Subscription Shares not subscribed for by existing shareholders in the pre-emptive offering may be offered to third parties.


The Subscription Shares may be paid for, by choice of the subscribers, including existing Company shareholders, either in cash or in ordinary shares of the Federal Grid Company (the FGC Shares) based on the valuation of RUB 0.2836 per FGC Share and the price of RUB 2.79 per Subscription Share approved by the Company Board of Directors on 5 April 2013.


In accordance with the laws of the Russian Federation, an independent appraiser, LLC Ernst & Young - Appraisals, was engaged by the Company to estimate the offer price per Subscription Share. In addition, the Company engaged the international investment banks Morgan Stanley and VTB Capital to provide fairness opinions to the Board of Directors in relation to the FGC Share to Company Subscription Share swap ratio.


It is expected that the Agency will exercise all of its pre-emptive rights to subscribe for Subscription Shares in the pre-emptive offering in consideration for its shareholding in the Federal Grid Company. As a consequence, following the Proposed Restructuring the Federal Grid Company will become a subsidiary of the Company. The Agency intends to retain at least one FGC Share in order that, in accordance with Russian law, it may enter into the shareholders' agreement with the Company which is discussed below.


Following the Proposed Restructuring, and assuming the exercise by the Russian Federation of all of its pre-emptive rights in relation to the Subscription Shares but not the issuance of any other Subscription Shares in connection with the Proposed Restructuring, the Russian Federation would hold about 86 per cent. of the Company's enlarged share capital.


On 6 May 2013, the EGM is to consider the increase of the charter capital through placement of the Subscription Shares, and the Russian Federation is expected to contribute its shares in Federal Grid Company into the charter capital of Russian Grids prior to 30 June 2013. The Company will update the market on further steps in implementing the Proposed Restructuring.  

Management of the Federal Grid Company after the Proposed Restructuring


In accordance with the Decree and subject to approval by the EGM, upon completion of the Proposed Restructuring, the Company intends to enter into a shareholders' agreement with the Agency (the Shareholders' Agreement) regulating certain corporate governance matters relating to the Federal Grid Company for the purposes of maintaining state control in relation to the Federal Grid Company. The Shareholders' Agreement will be governed by Russian law. The Shareholders' Agreement will be subject to the EGM approval as a transaction in which the Russian Federation is interested. Pursuant to Russian law, the draft of the Shareholders' Agreement will be made available to the shareholders of the Company prior to the EGM.


Brief Description of the Companies

Information on Russian Grids

Russian Grids comprises interregional and regional distribution grid companies (jointly, DGCs), research and development institutes, design and construction institutes, and construction and sales entities. The subsidiaries of Russian Grids are based in 69 constituent entities of the Russian Federation. All DGCs, except two, are natural monopolies under Russian law in respect of the electricity distribution grids which they operate.

The operational area of the Russian Grids companies covers a power network of ten voltage types, ranging from 0.4 kV to 220 kV. The total spread of networks of Russian Grids' operating subsidiaries exceeds 2.1 million kilometres. Russian Grids ranks among the world's largest electric grid companies in terms of network spread and customers.

Calculated in accordance with International Financial Reporting Standards (IFRS), in 2011 Russian Grids had revenues of RUB 634 billion and EBITDA of RUB 107 billion.

Information on Federal Grid Company

Federal Grid Company is the operator and manager of Russia's unified electricity transmission grid system, including high voltage transmission lines, and holds the status of a natural monopoly.

The Federal Grid Company's assets include more than 132,300 km of transmission lines and 891 substations with voltage from 35 to 750 kV with more than 334,8 GVA transformer capacity. Based on the length of transmission lines and installed transformer capacity, the Federal Grid Company is the largest publicly traded electricity transmission company in the world.

The Federal Grid Company's business is to provide electricity transmission and technological connection services. It maintains and develops the grid system and supervises grid facilities and infrastructure in 73 Russian regions, covering a territory of 13.6 million square kilometres. Its customers are regional distribution companies, electricity suppliers and large industrial enterprises.

Calculated in accordance with IFRS, in 2011 the Federal Grid Company's revenues were RUB 140 billion and adjusted EBITDA (without gains or losses on asset disposals) was RUB 84 billion.





Analysts / Investors

Federal Grid IR team



Alexander Duzhinov

+7 (495) 710 9064

+7 (916) 041 8053

Nadezda Sukhova

+7 (495) 710 9541

Egor Toropov

+7 (495) 710 9333 ext. 2275

Vladimir Baklanov

+7 (495) 710 9333 ext. 2926

International Media




Tom Blackwell

+7 (495) 363 2841

+7 (919) 102 9064

Sam VanDerlip

+44 20 7920 2356

+44 7725 026 247



Important Information



This announcement is not intended to, and does not constitute, or form part of, an offer to sell or an invitation to purchase, exchange or subscribe for any securities or a solicitation of any vote or approval in any jurisdiction. This announcement does not constitute a prospectus or a prospectus equivalent document.

Overseas jurisdictions

The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law (Restricted Jurisdictions) and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements. This announcement has been prepared for the purposes of complying with English regulations and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of England. Except as required by applicable law, copies of this announcement are not being, and may not be, mailed or otherwise forwarded, distributed or sent in, into or from any Restricted Jurisdiction. Persons receiving this announcement should observe these restrictions and should not send or distribute documents in or into any Restricted Jurisdiction.

This announcement is directed only at (i) persons who are outside the United Kingdom, or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act (Financial Promotion) Order 2005 (the Order), and (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons).  Any investment or investment activity to which this announcement relates will only be available to and will only be engaged in with relevant persons. Any person who is not a relevant person should not act or rely on this announcement or any of its contents.

Securities may not be offered or sold in the United States absent registration under the U.S. Securities Act of 1933, as amended (the Securities Act), or pursuant to an exemption from such registration. None of the securities in Russian Grids to be issued in connection with the Proposed Restructuring are have been or will be, registered under the Securities Act or under the securities laws of any jurisdiction of the United States. The securities of the Russian Grids and the Federal Grid Company have not been, and will not be, registered under the Securities Act or under the securities laws of any jurisdiction of the United States.

This announcement may include certain forward-looking statements with respect to the financial condition, results of operations and business of the Russian Grids and the Federal Grid Company and their respective subsidiaries and certain plans and objectives of their respective board of directors. These forward-looking statements can be identified by the fact that they do not relate to any historical or current facts. Forward-looking statements can be identified by the fact that they do not relate to any historical or current facts. Forward-looking statements may use words such as "proposed", "anticipate", "expect", "estimate", "intend", "plan", "believe", "will", "may", "should", "would", "could" or other words with a similar meaning. These statements are based on assumptions and assessments made by the board of directors and management of the companies in light of their experience and perception of historical trends, current conditions, expected future developments and other factors they believe appropriate. By their nature, forward-looking statements involve risk and uncertainty and there are a number of factors that could cause actual results and developments to differ materially from those expressed in, or implied by, such forward-looking statements.

These forward-looking statements speak only as at the date of this announcement. Save as required by the requirements of the Financial Services Authority or the London Stock Exchange or otherwise arising as a matter of law or regulation, each of Russian Grids and the Federal Grid Company  expressly disclaims any obligation or undertaking to disseminate after publication of this announcements any updates or revisions to any forward-looking statements contained herein to reflect any change in the companies' expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The websites of each of the Russian Grids and the Federal Grid Company do not constitute or form part of this announcement.


This information is provided by RNS
The company news service from the London Stock Exchange
Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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