IDGC Holding to Swap Its Additionally Issued Shares for Shares in Kubanenergo and TDC Held by Neft-Aktiv

JSC Interregional Distribution Grid Companies Holding (IDGC Holding) and Oil Company Rosneft (Rosneft) have agreed that the shareholdings in Kuban Power and Electrification Open Joint Stock Company (Kubanenergo) (27.97% of the authorized capital) and Joint-Stock Company Tomsk Distribution Company (TDC) (25.64% and 27.43% of its ordinary and preference shares respectively) owned by a subsidiary of Rosneft, Neft-Aktiv Limited Liability Company (Neft-Aktiv), will be swapped for IDGC Holding’s additional shares whose issue was registered on November 10, 2011.

On the terms of this deal, Neft-Aktiv will buy 1,588,994,637 additional shares in IDGC Holding (3.15% of the authorized capital) for 4,894,103,481.96 rubles, while Tyumenenergo (a wholly owned subsidiary of IDGC Holding) will purchase Neft-Aktiv-held shares in Kubanenergo and TDC for the equivalent amount.

It is planned that the transactions will be completed in parallel. The shares to be sold to Neft-Aktiv come from IDGC Holding’s additional stock that will remain unplaced after the preemptive right of shareholders has expired.

The value of the stakes is based on the weighted average historical price of each company’s shares for 15 months, adjusted for a premium payable due to the fact that Neft-Aktiv has blocking shareholdings in Kubanenergo and TDC.

In addition, the above-mentioned value is above the current market quotes because the shares, particularly in Kubanenergo, are substantially undervalued as the assessment of the value of the blocking shareholdings took account of the companies’ fundamentals. One of the fundamental factors is that Kubanenergo, as a major participant in the construction of Olympic Games facilities in the Sochi area, has the considerable volume of construction in progress. As the incomplete facilities go into operation in the future, it is anticipated that total investments (over 20 billion rubles) will be included in the company’s asset base, adding to its appeal for investors. In accordance with the tariff models that are currently under discussion, the commissioning of the facilities in 2014 is expected to raise the ratio between the bought stake in Kubanenergo and the initial Regulatory Asset Base (iRAB) from 5.8 billion rubles (subject to approval of the iRAB for 2011) to 11.8 billion rubles.

To complete the transactions as scheduled, IDGC Holding has engaged Tyumenenergo. Tyumenenergo will use the funds received by IDGC Holding from Neft-Aktiv as payment for its additional shares to buy shares in Kubanenergo and TDC. The share swap will result in IDGC Holding and Tyumenenergo jointly taking a 67.14% stake in Kubanenergo and holding 85.52% of ordinary shares and 27.43% of preference shares in TDC.

The deal will enable IDGC Holding to consolidate its shareholdings in Kubanenergo and TDC and have better control of its assets. Rosneft, for its part, will have blue chip shares in IDGC Holding in exchange for shareholdings in companies that are of no long-term strategic interest to Rosneft in terms of its core business.

It is expected that IDGC Holding will acquire the above-mentioned shareholdings from Tyumenenergo in the future.

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