OREANDA-NEWS. June 29, 2010. Company shareholders approved an additional share issue with the maximum size of 13.8 trillion shares at INTER RAO’s AGM, reported the press-centre of OTKRITIE Financial Corporation.

The shares, which will be used to swap for a basket of state’s utilities assets, will be issued at the end of 2010 or beginning of 2011. INTER RAO expects to raise USD6-10bn through the shares issue for the purpose of the swap. The exact price will be known in the Fall.

View: According to the calculations in our 28 May note entitled, INTER RAO: "Trading sell as dilution risks escalates," the fair price of the state’s utilities basket is USD8.9bn, a figure that is within the range announced by the company. However, if the company issues the maximum number of new shares approved, this would translate into c0.06-ў0.085/share, which is significantly below the current market price of c0.15. Our calculations imply that INTER RAO will need to issue only 5.9 trillion new shares to perform the assets swap.

Valuation and Action: We continue to see significant dilution risks for INTER RAO’s shareholders for the endof2010 – beginning of 2011. Our fundamental-based target price of 0.15 implies a 1% discount to the current market price, but does not take into account INTER RAO’s upcoming assets swap. Although we rate the stock as a HOLD, we do not recommend that investors purchase it at this juncture.