VS Energy and state act to dilute Zhevago in Odesaoblenergo

Shareholders of Odesaoblenergo (ODEN UK) approved a 2.9x capital increase at their April 25 EGM, Interfax reported on April 26, citing VS Energy, the utility’s main shareholder. As a result of the capital increase, the state’s will retain its 25% stake in the company, VS Energy reported. Further details weren’t made available.

Alexander Paraschiy: As far as we can tell, most of new shares have been purchased by VS Energy (which holds 55.4% of undiluted shares). Other two large shareholders – the state (25.0% ownership) and Kostyantyn Zhevago (10.4%) – did not subscribe to the new shares. What’s unique in this situation is the state, with its 25% stake, had been resisting approving the capital increase (which requires 75% of shareholder votes) ever since the subscription for the new issue was completed in January 2007. Yet after about six years of negotiations, VS Energy has been finally able to persuade state representatives to vote in favor. As part of the deal, it seems that VS Energy granted 25% of the newly created shares to the state (as a policy, the government doesn’t participate in capital increases of Ukrainian companies, with Naftogaz and some restructured banks as the exceptions). For more details on the conflict, refer to our Odesaoblenergo note from Dec. 7, 2007.

Effectively, this means that the state and VS Energy conspired to dilute Zhevago. As a result of the deal, his stake in the company will decrease to 3.6% from 10.4%, we estimate. Whatever it means for Odesaoblenergo (we do not cover it any more), we see this as a distress signal for Zhevago and other shareholders of Ferrexpo, revealing the billionaire’s weak lobbying position compared to VS Energy’s owners.

In turn, this event raises the likelihood that Zhevago will lose in another long, ongoing conflict with VS Energy over the Poltava Iron Ore Plant (PGOK UK). Recall, VS Energy gained an interim victory in its attempt to restore its 40.2% stake in Poltava Iron Ore, in which Ferrexpo currently owns a 97.3% stake (for more details, refer to our news on Ferrexpo from April 5, 2013). A decrease in Ferrexpo’s stake in Poltava Iron Ore (from 97.3% to 57.1%) looks like just a matter of time, and the recent conspiracy between the state and VS Energy hints it can happen soon.