Statement from EOS Russia’s Board of Directors
EOS Russia’s Articles of Association provide for a shareholder decision at the Annual General Meeting in 2013 regarding the Company’s continuation or liquidation. Although there is ample time between now and then for the factors relevant to that shareholder vote to change in a material way, EOS Russia’s Board of Directors nevertheless believes that it is time to begin preparations for the 2013 AGM. The need to lay such groundwork is underlined by what the Board considers to be the major problem of the persistent and deep discount of the Company’s share price to its Net Asset Value.
To this end, the Board has undertaken a thorough review of the Company’s investment case in the light of recent and prospective developments, the method used to value the investment portfolio and the liquidity of the portfolio. The initial conclusions of this exercise are as follows:
Investment case:
Recent developments in Russia including improved political visibility and lower inflation create, in the Board’s opinion, a favourable backdrop for reform in the electricity sector not only to be continued, but also to be enhanced.
This encouraging outlook applies in particular to the low voltage distribution sector (MRSKs) which is currently EOS Russia’s main investment focus. The indispensable investment in Russia’s electricity grid infrastructure will depend on investor confidence in the prospect of reasonable returns. This essential condition for value creation is now taking final shape with the definitive fine-tuning of the RAB regulatory framework. In addition, in order both to raise the finance required for this infrastructure investment and to enhance the efficiency of that investment, the Russian government is now committed to the privatization of the MRSKs.
EOS Russia also has significant positions in regional generation companies and Siberian hydro companies. These positions reflect the Company’s strategy of positioning the investment portfolio where the best relative value within the Russian electricity sector is perceived to lie.
Valuation, Leverage & Liquidity:
- The Board has reviewed the Company’s approach to measuring the NAV of its investment portfolio and concludes that the established valuation principles and method result in a good proxy for the true value of the portfolio in an unstressed environment (which would exclude, for example, forced selling situations).
- EOS Russia has not used leverage since the fall of 2008 and does not intend to use leverage within the foreseeable future.
- EOS Russia has access to all important sources of liquidity: open market, unofficial market and well developed contacts with strategic investors. The Board’s review of the portfolio’s liquidity indicates that a significant return of capital to shareholders could be implemented in a reasonable period of time without material loss relative to the NAV measured in the way described above.
Preparations for the 2013 AGM:
During the second half of 2012, the Board will submit a recommendation to the shareholders on the future of the Company after the 2013 AGM, allowing existing and potential shareholders time to evaluate the situation and position themselves ahead of the vote in 2013.
The Board’s recommendation will address changes to the company’s capital base and/or changes to the structure of the company. This recommendation will take into account the following main factors (among others) as they appear at that time (second half of 2012):
- The outlook for the investment case
- Shareholder base
- Discount of EOS Russia’s share price to its NAV
- Value of the company
- Liquidity of EOS Russia’s shares
The part of the recommendation dealing with the capital base will be affected in particular by the level of discount of EOS Russia’s share price to its NAV at that time; and the portfolio would be repositioned well ahead of such events in order to ensure sufficient liquidity.
Should the company continue its life after the 2013 AGM, the Board sees a strong need to implement changes designed to minimize the risk of a share price discount persisting in the future. Among a range of possible steps to this end, a full listing on a regulated exchange would be relevant.
Although the detailed content of the Board’s recommendation to the shareholders on the future of the Company cannot be foreseen at present, that recommendation will be framed with a view to ensuring equal treatment of all shareholders and maximizing the proceeds of realized assets in an efficient way for the shareholders.
For further information, please contact: ir@eos-russia.com
EOS Russia is an investment company headquartered in Stockholm. The overall objective of the company is to offer attractive returns via investments in the Russian electricity industry. EOS Russia's shares have been listed on First North, a marketplace operated by the Stockholm Stock Exchange, since 25 June 2007.