They are afraid of machinations with shares of the holding company The process of the reorganisation of RAO UES of Russia may entail risks for investors - this is the warning that a number of investment companies have communicated to the Moscow Interbank Currency Exchange (MICEX) stock exchange. Repo transactions with the holding company's securities that are estimated at 10-20 billion roubles a day may become subject to unfair operations because of some imperfections in the relevant laws and regulations. In order to level possible losses for investors, brokers already request additional agreements to transactions with the holding company's securities. In early September, the first stage of the RAO UES of Russia reorganisation is to be completed as Wholesale Generating Company No 5 (WGC-5) and Territorial Generating Company No 5 (TGC-5) are spun off from the holding company. As a result of the transformations, RAO UES shareholders will gain shares of WGC-5 and TGC-5 in addition to their RAO UES shares, proportionally to their interests in the holding company. However, a number of Russian brokers believe that the RAO UES reorganisation may entail losses for investors participating in repo transactions with the holding company's shares. A letter with a description of this situation has been sent by a number of investment companies, including Otkrytie, East Capital, Aton Line, and Alfa Direct, to MICEX and the National Association of Stock Market Participants. Repo transactions are sale and purchase deals with issued securities (the first part of a repo transaction) with the obligatory subsequent resale and repurchase of the securities of the same issue and in the same number (the second part of the repo transaction) after a period of time set forth in the agreement and at a price stipulated by that agreement as the first part of such a deal is concluded. In the opinion of the investment companies' representatives, the rules of trade on MICEX should guarantee the shareholder that, once the repo transaction is closed, he or she will receive the additional securities of the WGC-5 and TGC-5 resulting from the reorganisation. "Otherwise, there may arise conflicts associated with the establishment of the owner of the generating companies' shares," warn market participants. The closing of some repo transactions with RAO shares may occur as the new power companies have already been spun off from the holding company. "Unless measures are taken now, investors will lose on their repo deals just what RAO UES shares will lose in price upon the spin-off of the WGC and TGC. We estimate this amount at 5-6%," thinks Andrei Aletdinov, director of the Active Operations Department at BrokerCreditService. MICEX is also concerned about this situation. The trouble is that repo transactions with RAO UES ordinary shares total 10-20 billion roubles a day. Considering such amounts, the stock exchange does not rule out that unfair counteragents may make use of this situation. Therefore, MICEX intends to send a letter to the Federal Service for Financial Markets (FSFM) with a proposal to consider the possibility of regulating the situation within the framework of delegated legislation or by means of introducing amendments to the federal legislation. Russian Trading System, which is another Russian platform, has a mechanism that provides for the recovery of all assets obtained during the term of the deal. However, it has almost no repo transactions with RAO UES securities. The FSFM are not ready to comment on the situation as yet. The holding company confirmed that counteragents in repo transactions may indeed come into conflict. Maksim Zavalko, deputy director of the RAO UES Corporate Governance and Shareholder Relations Department, said shareholders entitled to WGC-5 and TGC-5 shares will be those included in the shareholders register by the end of the state registration day. So, notwithstanding the operations conducted with the holding company's securities before that deadline, it is the new owner who will receive WGC-5 and TGC-5 shares, while the former owner as he or she repurchases the shares on the next day will obtain them without being entitled to shares of the generating companies any longer. The parties to the repo transaction may stipulate some other terms though," explained Mr Zavalko. A number of experts point out that repo transactions with shares of RAO UES will be few at the moment of its reorganisation. Mikhail Mun, head of the sales department at Energokapital, estimates that more than one half of daily repo transactions with RAO UES shares are concluded for a period equal to or shorter than one week and one day long deals account for a third of the total amount. "There are very few deals that may embrace the restructuring process. When the reorganisation is being completed, transactions will be made one day long so that their closing date coincides with the date of record," he assumes. However, in order to level all possible risks, a number of brokers suggest that investors should enter into additional agreements as they conduct repo transactions. "These agreements stipulate that dividends and other incomes paid by the issuer are returned to shareholders at closing," concludes Aleksei Bazarov, head of the repo department at MDM Bank. |
