The sale of the Reftinskaya hydroelectric power station will provoke an increase in shares of Enel Russia - Veles Capital. Three companies showed interest in purchasing the Reftinskaya GPP. Reftinskaya GPP has been sold.

Enel Russia ended 2017 with a good profit result - almost 8.5 billion rubles. according to IFRS, which is almost 100% higher than in 2016. This dynamics is due to increased payments for capacity under the CSA program, as well as optimization of costs and debt portfolio.

Shareholders have the right to count on dividends based on 60% of profits - 0.14493 rubles, which provided about 10% dividend yield. From next year until 2020, the coefficient will be even higher - 65% of profit.

Despite the decline in profits predicted by management in 2018-2019, the investment case cannot be called negative, but there are nuances. The company has been trying for a long time to sell its main asset in thermal coal generation - Reftinskaya GRES. This was a consequence of the decision of the board of directors to take the trend towards the development of green generation. In addition, there is an opinion that this coal station requires very large capital expenditures for modernization and increased environmental friendliness.

By the end of 2021, the company plans to build wind farms in Russia with a total installed capacity of 291 MW for approximately 405 million euros (29.5 billion rubles). Previously, the company stated that most of the investment program would be financed from borrowed funds.

It is worth noting that these capex are subject to the renewable energy DMP program, which guarantees a return on investment for 15 years with a return of 12% per annum through additional payments for capacity. Thus, this decision will diversify the company's profile and provide additional income after 2020.

This raises several questions. How much of the proceeds from the sale of the power plant will be used for capital expenditures on the new wind generation project, and how much will be used to pay special dividends, if any? Is it possible that funds in one proportion or another will be used to modernize the remaining thermal generation?

As for the dividend policy regarding core activities, it should not change. The company included in its forecast until 2020 the payment of dividends in the amount of 65% of profits under IFRS. According to the company's forecasts, excluding the sale of Reftinskaya GRES, Enel Russia intended to pay 14.8 billion rubles. dividends, which really should have led to negative cash flow and, accordingly, to an increase in net debt to 38.4 billion rubles. by the end of 2020

Strictly speaking, there are currently no answers to most of these questions. However, first, it’s worth looking at what Reftinskaya GRES (RGRES) is in general and its place among other assets of Enel Russia.

Key asset

It is worth noting that this is the largest coal-fired power plant in Russia. In electricity generation, RGRES accounts for almost half of the total volume of Enel Russia. In 2017, its production increased by 1.5% compared to 2016, to 19,648 GWh.

Thermal energy supply increased in 2017. increased by 9.8%, to 459 thousand Gcal. The station accounts for almost 10% of the total heat generated.

As for the installed electrical capacity of Reftinskaya GRES, it is 3,800 MW. From this point of view, after the sale of the station and the commissioning of new wind farms (291 MW), Enel Russia will lose a significant share of its installed capacity, which will seriously affect further production and financial indicators.

What are the prospects?

According to a number of experts, Reftinskaya GRES earns approximately 7 billion rubles. EBITDA per year. If we take management’s forecasts for EBITDA as a basis, which is 16.4 billion rubles. in 2018 and 16.9 billion rubles. in 2019, then subtracting the share of Reftinskaya GRES, we will get approximately 40% of the disposal of earnings before taxes, interest and depreciation.

Approximately the same figure can be used as a guideline when assessing dividends after the sale of a key asset. This means that if the transaction for the sale of RGRES is completed before the end of 2018, dividends in 2019 could amount to 0.08-0.09 rubles. And at the end of 2018, management planned to pay shareholders around 0.13 rubles.

Thus, in the event of a sale of its key asset, management will be forced to radically revise its forecasts for production and profit. Despite maintaining the dividend ratio at 60-65%, this will not be enough to make the shares highly attractive at current market prices.

How much does Reftinskaya GRES cost?

According to various experts, this asset could cost from 25 to 35 billion rubles. At SPIEF 2018, the head of Enel Russia, Francesco Starace, announced that the list of buyers had been reduced to one, without specifying who he was talking about. According to the Kommersant newspaper, this is the Siberian Generating Company (SGK). The media mentioned a purchase price close to 21 billion rubles. In terms of one share of Enel Russia, this is approximately 0.59 rubles. Also, the head of Enel Russia stated that the sale transaction could be closed by the end of 2018.

What will happen to the money

So, if you believe Kommersant’s sources, Enel Russia can earn about 21 billion rubles for its main asset. This money can be used to pay off debt, which is generally not bad. At the end of the first quarter of 2018, the company's net debt was about 17.5 billion rubles. The Net Debt/EBITDA ratio is about 1x.

But the company still has to spend about 29.5 billion rubles. for the construction of wind farms. It was planned to use borrowed financing, so it would not be possible to completely repay the debt.

Can I count on special dividends?

There is no clear answer to this question. Most likely, closer to the closing of the transaction, this issue will be discussed between the majority and major minority shareholders, including PFR Partners Fund I Limited and Prosperity Capital Management Limited. It is possible that a certain portion of the proceeds from the purchase may be paid out in the form of special dividends. After the deal is announced, this moment will be one of the key triggers that investors should watch.

An important factor that is worth paying attention to is the following: after a major asset alienation transaction has been completed, the issuer must make an offer to dissenting shareholders. The redemption price will most likely be the weighted average price for the last 6 months. Currently it is around 1.52 rubles.

Also, do not forget about the remaining heat generating assets that need modernization under the CSA2 program.

Apparently, negotiations on the sale of Reftinskaya GRES are at the final stage. The disposal of this asset from Enel Russia will lead to a radical reassessment of management's production and financial forecasts. At the same time, dividend payments from 2019 may be reduced to 8-9 kopecks per share, even taking into account the preservation of the coefficient of 65% of profits. Instead of retiring 3,800 MW of coal generation, the company plans to build only 300 MW of wind generation. Moreover, the costs of building wind turbines are even higher than the estimated amount of the transaction for the sale of Reftinskaya GRES. A mitigating factor will be additional income from the CSA program in the renewable energy sector.

But there are also positive aspects. Firstly, if the sale transaction is closed only by the end of 2018, investors have the right to count on about another 0.13 rubles. dividends. Secondly, if the company uses the funds received from the sale of RGRES to finance the construction of wind farms and modernization of the remaining thermal generation, the debt burden should not increase significantly. In addition, there is the possibility of paying special dividends.

Konstantin Karpov

© Vladimir Zhabrikov/TASS

Applications for the purchase of Reftinskaya GRES from the Italian energy holding Enel were submitted by three companies, including Grigory Berezkin’s Unified Social Network Group, a source in the energy sector told TASS.

“Several applications were submitted. Three companies showed interest in the station,” the agency’s interlocutor said.

The press service of the ESN Group confirmed to TASS that the group sent an offer to Enel to purchase Reftinskaya GRES.

“The UST Group made an offer to purchase Reftinskaya GRES. A comprehensive due diligence was carried out, our specialists and subject matter experts visited the station several times. Based on the results of this work, a commercial proposal was formulated. We are awaiting the decision of Enel and the company’s minority shareholders,” the press service said .

A TASS source noted that the UST Group's proposal is "the best in price among the participants who submitted bids."

Enel Russia does not comment on the process of the transaction for the sale of Reftinskaya GRES.

The UST Group has been cooperating with Enel since 2003. The first implemented project was the project to manage the North-West CHPP. Currently, a joint venture between Enel and the ESN Group, Rusenergosbyt, operates in Russia.

About the station

As reported, Enel resumed negotiations on the sale of Reftinskaya GRES in the summer of 2017. When Enel Russia put the state district power plant up for sale for the first time, in 2016, Inter RAO, the Siberian Generating Company (SGK) and the Chinese Huadian were interested in buying it. This time, Gazprom Energoholding, SGK and the ESN Group reported interest in the station.

Gazprom Energoholding told TASS in January 2018 that it had not submitted an application to Enel to purchase the station. According to the head of the company Denis Fedorov, the company believes that the price of the station is too high. The SGK did not answer the question about whether there was an offer to purchase the station.

Enel CEO Francesco Starace said that by the end of 2017 the company plans to complete the acceptance of binding applications for the purchase of Reftinskaya GRES. The deal to sell the station is scheduled to be closed by mid-2018. The estimated amount of the transaction was not disclosed to them.

Reftinskaya GRES with a capacity of 3.8 GW is located in the Sverdlovsk region, the station operates on coal from the Ekibastuz deposit located in Kazakhstan.

Enel Russia is a Russian wholesale producer of electrical and thermal energy. The Russian company has four production branches: in the Ural region - Reftinskaya and Sredneuralskaya GRES, in the North Caucasus - Nevinnomysskaya GRES, in Central Russia - Konakovskaya GRES.

The Siberian Generating Company (SGK, part of Andrey Melnichenko’s SUEK) and Enel Russia have not yet made much progress in agreeing on the terms of the deal to purchase the coal-fired Reftinskaya GRES. According to Kommersant, the key obstacle is the cost of the asset. As Kommersant's sources say, Enel Russia wants to receive about 27 billion rubles, adding future income from its participation in the modernization program to the cost of the state district power plant. SGK still believes that the station costs no more than 21 billion rubles.

Enel Russia has not yet set a clear deadline for the possible sale of Reftinskaya GRES (the buyer is Siberian Generating Company - “Kommersant”), the company's financial director, Yulia Matyushova, said on November 1 at a telephone conference with analysts. “Due to external factors, it will take more time to make a decision,” she clarified.

The sale of the Reftinskaya GRES has been very delayed: Enel Russia has been looking for buyers since 2016 and, according to unofficial data, initially planned to gain 35 billion rubles, but no one offered that price. At different times, Inter RAO and the Chinese Huadian were interested in purchasing the state district power plant; binding bids were later also submitted by Grigory Berezkin’s unified social network group and one of Oleg Deripaska’s structures, but then they withdrew from the negotiation process.

In September, SGK General Director Mikhail Kuznetsov said that the company would decide on the purchase of the state district power station by the end of the year: “I think we will accelerate in November. And by the end of the year it will be clear whether we buy it or not. We together (with Enel Russia) - “Kommersant”) should remove all questions about whether there will be a deal,” explained the top manager of SGC then. According to him, differences remain in the negotiations, the essence of which he refused to explain. On Thursday, Kommersant was told by the SGK that negotiations are still ongoing and their details are not yet ready to be disclosed.

According to Kommersant, Enel Russia now wants to receive about 27 billion rubles for the Reftinskaya GRES, which does not suit the SGK, which, as Kommersant previously reported, does not plan to pay more than 21 billion rubles for the asset.

Enel Russia is trying to raise the contract price through the possible participation of Reftinskaya GRES in the TPP modernization program (a program discussed in the government to replace old equipment with new ones with guarantees of return on investment). After modernization, the new owner will receive increased payments for power from the wholesale energy market.

Vladimir Sklyar from VTB Capital believes that the valuation of 27 billion rubles. implies an EV/EBITDA multiple of 4.1 versus an average of 3 for generating assets in Russia (and 3.5 for Enel Russia itself). This assessment, according to the expert, “looks quite ambitious and difficult to achieve,” taking into account all the risks of this asset - fuel, operational, environmental and others.

According to Kommersant's information, the issue of coal supplies to the Reftinskaya State District Power Plant has not been resolved either. As Kommersant reported on May 25, SGK was negotiating with Rusal to purchase from the US-sanctioned aluminum company its 50% share in the Bogatyr-Komir joint venture with the Kazakh Samruk-Energo. The joint venture is developing the Bogatyr coal deposit near Ekibastuz, which is the raw material base for the Reftinskaya State District Power Plant. According to a Kommersant source familiar with the progress of the negotiations, the feasibility of this purchase is still being studied, but the option is not the main one. According to him, so far there are two schemes: either continue to buy coal in Kazakhstan, or switch to fuel from Russia, but the second option will require re-equipment of the station, and the effectiveness of this is not obvious.

Maxim Khudalov from ACRA notes that Bogatyr coal is extremely cheap and there are no problems with its rapid delivery if needed. Conversion to Russian coal will require replacement of boilers and mills at state regional power plants, and the transportation distance from Siberia will be 3.5–4 thousand km. “But Russian coal is more environmentally friendly and, most importantly, reduces the need for ash dumps,” the analyst notes. An alternative could be the Berezovsky open-pit mine of SUEK in the Krasnoyarsk Territory - this is low-grade coal, but similar in characteristics to Ekibastuz coal, clarifies Mr. Khudalov.

Siberian Generating Company (SGK, part of Andrey Melnichenko’s SUEK) and Enel Russia have not yet made much progress in agreeing on the terms of the deal to purchase the coal-fired Reftinskaya GRES. The key obstacle is the cost of the asset. According to sources, Enel Russia wants to receive about 27 billion rubles, adding future income from its participation in the modernization program to the cost of the state district power plant. SGK still believes that the station costs no more than 21 billion rubles.

Enel Russia has not yet set a clear deadline for the possible sale of Reftinskaya GRES (the buyer is SGK), the company’s financial director Yulia Matyushova said on November 1 at a telephone conference with analysts. “Due to external factors, it will take more time to make a decision,” she clarified.

The sale of the Reftinskaya GRES has been very delayed: Enel Russia has been looking for buyers since 2016 and, according to unofficial data, initially planned to gain 35 billion rubles, but no one offered that price. At different times, Inter RAO and the Chinese Huadian were interested in purchasing the state district power plant; binding bids were later also submitted by Grigory Berezkin’s unified social network group and one of Oleg Deripaska’s structures, but then they withdrew from the negotiation process.

In September, SGK General Director Mikhail Kuznetsov said that the company would decide on the purchase of the state district power station by the end of the year: “I think we will accelerate in November. And by the end of the year it will be clear whether we buy it or not. We, together (with Enel Russia - ed.) must remove all questions about whether there will be a deal,” explained the top manager of SGK then. According to him, differences remain in the negotiations, the essence of which he refused to explain. On November 1, the SGC reported that negotiations were still ongoing and their details were not yet ready to be disclosed.

According to unofficial data, Enel Russia now wants to receive about 27 billion rubles for the Reftinskaya GRES, which does not suit the SGK, which does not plan to pay more than 21 billion rubles for the asset.

Enel Russia is trying to raise the price of the contract due to the possible participation of Reftinskaya GRES in the TPP modernization program (a program discussed in the government to replace old equipment with new ones with guarantees of return on investment). After modernization, the new owner will receive increased payments for power from the wholesale energy market.

Vladimir Sklyar from VTB Capital believes that the valuation of 27 billion rubles implies an EV/EBITDA multiple of 4.1 versus an average of 3 for generating assets in Russia (and 3.5 for Enel Russia itself). This assessment, according to the expert, “looks quite ambitious and difficult to achieve,” taking into account all the risks of this asset - fuel, operational, environmental and others.

According to available data, the issue of coal supplies to the Reftinskaya State District Power Plant remains unresolved. SGK was negotiating with Rusal to purchase from the US-sanctioned aluminum company its 50% share in the Bogatyr-Komir joint venture with the Kazakh Samruk-Energo. The joint venture is developing the Bogatyr coal deposit near Ekibastuz, which is the raw material base for the Reftinskaya State District Power Plant. According to a source familiar with the negotiations, the feasibility of this purchase is still being studied, but the option is not the main one. According to him, so far there are two schemes: either continue to buy coal in Kazakhstan, or switch to fuel from Russia, but the second option will require re-equipment of the station, and the effectiveness of this is not obvious.

Maxim Khudalov from ACRA notes that Bogatyr coal is extremely cheap and there are no problems with its rapid delivery if necessary. Conversion to Russian coal will require replacement of boilers and mills at state regional power plants, and the transportation distance from Siberia will be 3.5–4 thousand km. “But Russian coal is more environmentally friendly and, most importantly, reduces the need for ash dumps,” the analyst notes. An alternative could be the Berezovsky open-pit mine of SUEK in the Krasnoyarsk Territory - this is low-grade coal, but similar in characteristics to Ekibastuz coal, clarifies Mr. Khudalov.