Font Size

- Aa +

Tue 23 Sep 2008 12:53 AM

Font Size

- Aa +

Dubai World pulls out of Russian OGK-1 deal - report

70% fall in Russian govt-controlled energy firm's share price kills deal, says source.

The Dubai government's sovereign wealth fund, Dubai World, has pulled out of a $5.3 billion deal to buy control of Russian power firm OGK-1 due to poor market conditions, a source close to the deal said on Monday.

"The investor [Dubai World] is not ready to put in money under the market conditions we're seeing now," the source said.

Dubai World spokeswoman Sana Maadad said the company, which guaranteed $100 million in July towards the acquisition of the electricity generator, could not immediately comment.

Dubai's Russian partner in the preliminary deal is an energy trader called Roskommunenergo. Last week, Roskommunenergo's chairman, Igor Kozhin, said the acquisition was on track.

When asked about the progress of the deal in July, OGK-1 general director Vladimir Khlebnikov said that Dubai World's commitment was "conditional" and that the company was in talks with another potential buyer who had shown "very serious interest".

OGK-1 spokeswoman Yana Dubeikovskaya said on Monday that the company was waiting for word from Dubai World.

Russia's energy minister said on Monday that it does not make business sense for the government to sell its electricity assets right now, because their market values have fallen so low. OGK-1 is indirectly controlled by the government.

"The situation on the market today allows us to pause, take a breath and look at where we can go from here," minister Sergei Shmatko told reports in response to questions about stake sales.

Under the preliminary agreement, Roskommunenergo offered 2.6 roubles per OGK-1 share, or $516 per kilowatt of the company's power generating capacity. At that price, the deal was worth $5.3 billion.

But the firm's market value has since fallen more than 70 percent below the offer price. At 1350 GMT on Monday, its stock stood at 0.720 roubles per share on the MICEX exchange.

Dubai has until Oct. 1 to perform due diligence on OGK-1, set the final structure of its relationship with Roskommunenergo and decide if it will go forward with the acquisition.

The Dubai World spokeswoman also declined to comment on whether this deadline would be met. Roskommunenergo was not immediately available for comment.

Other sources familiar with the situation have said the deal is most likely to fall apart or be renegotiated after the sharp drop in OGK-1's value.

"I think that after October 1 this agreement will quietly die," one of the sources said.

Dubai World would be the second foreign investor in the electricity sector to scrap investment plans after the recent turmoil in Russia's financial markets.

German utility RWE on Friday said it would not to go ahead with a deal to buy control of regional power producer TGK-2, citing market conditions. (Reuters)