October 5, 2017 / 1:14 PM / 12 days ago

Breakingviews - More for China than London in Russian hydro IPO

Russian tycoon Oleg Deripaska attends a session of the St. Petersburg International Economic Forum (SPIEF), Russia, June 1, 2017. REUTERS/Sergei Karpukhin

LONDON (Reuters Breakingviews) - Here comes one more way to bet on green energy. En+ Group, a company owned by Russian tycoon Oleg Deripaska which supplies electricity to and controls aluminium outfit Rusal, aims to raise $1.5 billion in a London and Moscow listing. It touts its clean, mostly Siberian hydropower, but new public investors will have little say. The cornerstone backer, a Singapore-based partner of the Chinese group that just bought into Rosneft, may see greater advantage.

The combination of remote hydro assets and a 48 percent stake in Hong Kong-listed Rusal isn’t easy to value reliably. Adjusted EBITDA for the year to June, which consolidates Rusal, was around $2.8 billion. Apply a 12 times multiple – between Norsk Hydro’s and Rusal’s own – and deduct $5 billion of debt, as reported by Reuters, and other interests in the aluminium producer worth around $6 billion, and En+ equity would be worth a bit more than $20 billion. Estimate enterprise value as two times some $11 billion of consolidated annual sales instead, and the market cap comes out nearer $10 billion.

The final figure depends, of course, on investor appetite. Aluminium made with clean energy has appeal, as dirtier sources have led to the closure of some smelters and end-users are increasingly concerned about the environmental impact of their entire supply chains. Demand from China and other Asian countries, including for cars, could provide growth opportunities. And En+ reports strong cash flow, supporting dividends.

Yet Russian listings with control concentrated in the hands of Deripaska and his peers don’t have a stellar record. One close-to-home example is Rusal, which listed in 2010 at HK$10.80 a share and promptly traded down 11 percent on its debut. The stock did better in 2011, but since 2012 has languished below HK$7. Another reason for investor caution is that En+ is set to be the first major Russian float in London since 2014, when sanctions were imposed over Crimea.

The IPO’s big backer, though, may have grander ideas. AnAn, a company related to CEFC China Energy, has committed $500 million to the En+ offering. That in part endorses the investment case. But when CEFC last month agreed to buy a 14 percent stake in Russian oil giant Rosneft from Glencore and the Qatar Investment Authority, it looked like a sign of tighter Sino-Russian cooperation on energy. There could be something similar at work with aluminium.

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