INTER RAO EES OAO : INTER RAO to streamline the structure of Power Generation Assets

The Board of Directors of INTER RAO UES has called for an Extraordinary General Meeting of Shareholders dedicated to the issues of corporate reorganization. The procedure is to take place on April 26, 2012 as an absentee vote. The list of persons authorised to take part in the Meeting and to demand buying out their shares is made as of 15 March 2012.

In the course of forming the Group's target corporate structure anticipating 100% possession of the main generating assets (according to the Board of Directors decisions), it is planned to accomplish the following procedures:

1. Both JSC OGK-1 and JSC OGK-3 will undergo a hive-off procedure, so there will be two joint companies to spin off - JSC First Generation and JSC Third Generation. All the assets and liabilities of OGK-1 and OGK-3 will be transferred to those new companies. At the same time those new spin off companies will be merged with JSC INTER RAO - Electric Power Plants (nowadays the company operates four power plants, such as Kaliningradskaya TPP-2, Severo-Zapadnaya TPP, Sochinskaya TPP and Ivanovskiye CPP).

2. At the same time OGK-1 and OGK-3 will me merged with INTER RAO UES.

Thereby all the highest-output Russian power plants operated by INTER RAO Group will be listed on the balance sheet of the same corporate entity which is a 100% subsidiary of INTER RAO UES.

The swap ratio parameters are based upon the reports of the independent appraiser - LLC Institute of Independent Appraisal. Morgan Stanley and Troika Dialog provided their opinions as to whether the swap ratios are fair from a financial standpoint.

One ordinary share of INTER RAO UES will be the result of conversion of 0.0416666666666667 of an OGK-1 ordinary share (24 shares of INTER RAO UES for one share of OGK-1), and 0.025 of an OGK-3 ordinary share (40 shares of INTER RAO UES for one share of OGK-3).

The reorganization is expected to be completed in the fourth quarter of 2012. As the result the total installed capacity of the United Operational Company INTER RAO - Management of Electric Power Plants will amount nearly 21 GW. Besides that, two second-tier subsidiaries are to be merged with INTER RAO UES. Those are JSC INTER RAO - Energy and JSC INTER RAO - Energoaktiv. Those companies own small minority stake in energy companies which partly belong to INTER RAO UES directly.

"The goal of the reorganization is to consolidate 100% of the Group's major power generating assets and create a common framework of their operational management. It is necessary to simplify the ownership structure of the assets, increasing its transparency and streamlining administrative costs. We expect the reorganization to have a positive impact on investment prospect for INTER RAO. Among other reasons, because of the essential free float increase and elimination of conglomerate discount", said the Chairman of the Executive Board of INTER RAO UES Boris Kovalchuk.

Along with optimization of the current structure of INTER RAO Group the head company of the Group - INTER RAO UES - is to be reorganized by acquisition of JSC Bashenergoaktiv.

On the assumption of the preliminary concept of reorganization and in the case of receiving all appropriate corporate approvals by Bashkirenergo and JSFC Sistema, it is expected that Bashkirenergo will be reorganized by disproportionate split into two companies: JSC Bashenergoaktiv (simultaneously merged with INTER RAO UES) and JSC Bashkirian Grid Company. At this point Bashenergoaktiv will take control over entire power generation business of Bashkirenergo by obtaining the shares of LCC Bashkir Generation Company, LCC Bashkirian Heat Distribution Network, and LCC TPP-5 CPP.

The details of Bashkirenergo reorganization are to be determined by the company's management (corporate governance bodies). At the same time the Board of Directors of INTER RAO UES has taken all the necessary decisions for Bashenergoaktiv acquisition, including determining the position for the shareholders vote on the reorganization at the Bashkirenergo shareholders' meeting.

According to the decisions of INTER RAO UES Board of Directors one ordinary share of INTER RAO UES can be the result of conversion of 0.0016588785046729 of an ordinary share of Bashenergoaktiv (602.82 shares of INTER RAO UES for one share of Bashenergoaktiv), and 0.00218293620292083 of preferred share of Bashenergoaktiv (458.10 shares of INTER RAO UES for one preferred of Bashenergoaktiv). These swap ratios have also been confirmed to be fair from a financial standpoint.

Morgan Stanley and Troika Dialog have acted as investment advisors in these transactions.

The Board of Directors of INTER RAO UES has also taken decision with respect to the bank guarantee agreement with Gazprombank in case of necessity of such element in the deal structure.

With the purpose of conversion of the above-referred companies' shares into INTER RAO UES shares the Board of Directors is suggesting the General Meeting of Shareholders to approve the increase of share capital by additional issue of ordinary shares. On the assumption of the reorganization details provided the conversion of all minority stakes of the companies to be merged the share capital of INTER RAO UES would increase by not more than 10%.

In addition to the decisions concerning the reorganization the Board of Directors has approved the sale of blocking stake of JSC ENEL OGK-5.

INTER RAO UES is a diversified energy holding working in various segments of Russian and international electric power industry. INTER RAO UES is a leading exporter and importer of electric energy in Russia actively increasing electricity generation and sales activities and developing new lines of business. INTER RAO UES corporate strategy is focused on making the company a global energy enterprise and a key player in the international energy market. INTER RAO UES Group owns and operates approximately 28,000 MW of installed power generating capacity. www.interrao.ru