China’s power company Yangtze Power will acquire a significant stake of EuroSibEnergo, a subsidiary of En+. Group En+ controls the energy sector companies held by Basic Element, a company of Oleg Deripaska.

Yangtze Power plans to acquire a stake worth USD 168 million of EuroSibEnergo’s shares during the upcoming initial public offering of the company scheduled to take place in the first months of 2011. Prior to Yangtze Power’s participation in the initial public offering, the company must secure approval from the government of China.

EuroSibEnergo projects that it will garner USD 1.5 billion when it sells a quarter of its outstanding shares of stock during the IPO.

The initial public offering is organized by Deutsche Bank, Bank of China International, as well as VTB Capital. The value of the Russian energy company has been estimated at USD 4 to USD 5.6 billion.  

The IPO’s organizers scheduled for the bid book to close on December 10. Pricing was due to take place on December 13. However, the critical consideration for EuroSibEnergo is to allow Yangtze Power to buy into the offering. The date chosen for the initial public offering will be set on the basis of the timetable for Yangtze Power’s securing of the approval from Chinese authorities.  

Some analysts, however, say that the IPO date has been pushed back not only because one of the main investors is not yet prepared to buy into the company, but also for the reason of weak market demand. Finance sector experts commented that the company was not able to find adequate demand during the marketing campaign even at the lower-range prices. The organizers of the initial public offering submitted offers that were based on the valuation of the company at USD 3.5 billion, and the response to the offers appears to have been weak. The USD 3.5 billion price is also considered to be at the lower end of the pricing spectrum.  

Meanwhile, EuroSibEnergo and Yangtze Power made a joint statement on organizing a strategic partnership. The companies announced their decision to set up a half-and-half joint venture that would be responsible for constructing electricity-generating stations in Siberia and the Russian Far East. Part of the power generated will be transmitted to the Chinese grid. So far, the two companies selected 6 possible projects to be implemented in Russia. The total capacity of the proposed power plants would be as much as 10 gigawatts. EuroSibEnergo and its Chinese partner agreed to complete feasibility studies on the projects in the next three years.

Having a joint venture with Yangtze Power will allow the Russian company to attract Chinese financing for the project. Yangtze has already committed to requesting the funds from banks and various export bureaus in China. Cooperation between the two companies will also take place in the area of equipment procurement and the exchange of technologies. 

EuroSibEnergo was formed for the purpose of consolidating Oleg Deripaska’s electricity-generating, power, and engineering sector companies last year. The company’s most significant assets include Irkutskenergo, where it has a controlling interest, coal production company Vostsibugol, Krasnoyarsk Hydro, as well as a whole host of smaller marketing and engineering firms. The company itself operates 14 power plants in Russia, having total capacity of 19.5 gigawatts. Hydro-power accounts for roughly 15 gigawatts. The company’s coal reserves total 1.29 billion tons. EuroSibEnergo generates around 9 percent of the electricity produced in Russia.