Andrey Ryumin spoke about the details of the process of merging PJSC Rosseti and its subsidiary PJSC FGC UES

Andrey Ryumin, General Director of Rosseti, and in the future of the united company, spoke in an interview with Interfax in more detail about this process and what awaits the shareholders next.

Why now

- The topic of merging FGC UES and Rosseti has been around for a long time. Why is it being implemented right now? And why was FGC selected as the company on the basis of which the consolidation will be carried out?

- The topic is really old and it has evolved progressively. The first step was the introduction in 2013 of the shares of FGC UES into the authorized capital of Rosseti as a single management company of the electric grid complex. At the same time, due to the strategic importance of FGC UES, the government of the Russian Federation retained direct control over the main issues of its activities through a shareholder agreement with Rosseti. This model lasted 10 years. Its effectiveness and options for further functioning were constantly discussed. In 2020, the executive offices were merged. Now we have come to the conclusion that the most effective way would be to create a single operating company.

As for why on the basis of FGC UES. During the time that I have been the general director of Rosseti, for the past year and a half, management has always advocated a merger on the basis of FGC UES.

FGC UES is an operating entity, while Rosseti is a holding entity. FGC UES has assets totaling more than 1.5 trillion rubles. This is a gigantic amount of registered property. Plus, FGC UES is implementing a huge investment program, the company has more than 300 licenses for various types of activities, and so on.

If we carried out the reorganization on the basis of Rosseti, then we would have to re-register all the property, and again obtain all licenses again. That is, from the point of view of management, this is a very expensive process, and I don’t even know how much time it would take.

Joining "Rosseti" to "FGC UES" is easier. Rosseti is a holding structure. Re-registration of blocks of shares is not very difficult, but by and large, what else is Rosseti? But this is from a management point of view.

Of course, from the point of view of the shareholders of the company, the state as a controlling shareholder in the first place, not only this was taken into account. It would be more correct for shareholders to comment here, but at all levels it was decided to unite on the basis of FGC UES. The management supported and supported him. We believe that this is the most rational, effective solution of all possible options.

- How long will the consolidation process take?

- We focus on the beginning of next year. The merger will be fully completed in the first quarter.

- Was the information already disclosed by name?

- Full name - "Federal Grid Company - Rosseti", abbreviated - "Rosseti". A different name would entail a massive rebranding. Imagine how many objects and special equipment we have. We follow the most efficient and economical way.

- What will be the names of IDGCs themselves?

- As now - "Rosseti Siberia", "Rosseti South" and so on. Everything is done in such a way as to minimize additional administrative costs, rebranding costs.

About InterRegional Grid Companies (IRGCs) and minority shareholders

- It turns out that now, as a result of the reorganization, FGC will directly own stakes in MRSK. What actions are planned with these companies? Will they remain public on the market?

- This is not a question of today. The first thing we must do is complete the process of reorganizing Rosseti and FGC in the first quarter of next year. And only after that to build any plans for further work with the "daughters".

Over the past ten years, different concepts have been discussed: to switch or not to switch to one share. I don't have an answer right now which of the models is the most efficient.

- Will FGC continue to receive management fees that Rosseti received from IRGC?

- This is a debatable issue. I think we will return to it and will consider it in detail after the merger. And we will definitely bring this issue up for discussion by the board of directors of the renewed company.

- Was the issue of reorganization of IRGCs discussed with minority shareholders? It is clear that there is a major state shareholder, but at the same time, there is SUEK in the same Rosseti Siberia, and there are other shareholders.

- We have built regular interaction with minority shareholders. This is not only Rosseti Siberia, there are other IRGCs where fairly large blocks of shares are owned by minority shareholders. We are constantly in discussions, discussions on various issues. In particular, somewhere we are discussing a possible buyback of shares, somewhere we receive proposals for an exchange.

- Is the exchange of IRGC shares for the shares of the new company?

- Minority shareholders at various times offered to change the stakes in IRGCs for shares in a holding structure.

We also received certain proposals regarding Rosseti Siberia, but for various reasons they were unrealizable. We are in dialogue with everyone, not only with the shareholders of Rosseti Sibir. After the reorganization, it will definitely continue.

- That is, the issue of transferring control has not yet been discussed for Rosseti Siberia?

- There are definitely no proposals that would be close to implementation. Over the past few years, we have been discussing several initiatives of the shareholders of Rosseti Siberia, but we are still far from making a decision.

- "Rosseti" had another peculiarity in that a "paper" revaluation of the value of IRGC shares had a great influence on the company's financial performance. How significant will this effect be for the new company? What impact will it have on financial results?

Of course, for Rosseti, the revaluation of the stakes in its subsidiaries had a strong impact on financial performance, and in the future - on the payment of dividends. FGC within Rosseti is the largest subsidiary, and a change in the market value of FGC can most affect the financial result. When reorganizing, we immediately leave this factor. This will have a positive effect in terms of financial cleanliness. Because the revaluation may depend on the trend on the stock exchange and not depend on the quality of the company itself.

At the same time, after FGC becomes the parent company of the holding, the remaining subsidiaries will be owned by FGC and will already influence its consolidated result.

- What options are being considered in relation to the treasury stake, which is formed as a result of the transaction? Is it planned to sell within a year?

- There are no restrictions on tenure. There are restrictions on direct ownership of the package, but it can remain in the group of companies for more than a year.

Decisions will be made by the board of directors. The treasury package can be used for various purposes, including consolidation. In particular, for the exchange with minority shareholders.

At the same time, taking into account external factors, the value of the shares of Rosseti and FGC is at the minimum levels, and it is probably wrong to sell a treasury stake on these conditions.

One strategy is to hold a treasury stake, wait for the share price to rise, and then sell it. The company thus receives additional profit. But, as I said, it can also be considered as a tool for consolidation, for exchange.

A little about the future

- A question about dividends. What dividend policy is currently being discussed within the framework of the new company?

- The issue of dividends will be discussed in 2023 after the merger and summarizing the financial results of 2022. If the shareholders decide to pay dividends, then this will be done by a single company.

- I would like to ask a slightly more general question. In addition to the reorganization process, you also have a fairly large investment program. Are other additional issues of shares being considered for making money by the state already directly in money for investment purposes?

- There will definitely be a property additional issue. It is premature to name the dates, but the property additional issue has already been carried out more than once.

As for the additional issue to attract financing, this issue is currently being worked out with the federal executive authorities. Indeed, the investment program is very large, especially if we are talking about projects of national importance. This is not only the energy supply of the BAM / Transsib. At the EEF, we announced a major project in the Far East - a 500 km line from Primorskaya SRPP with a 500 kV Varyag substation. The estimated cost of the project is more than 40 billion rubles. Therefore, we ask you to consider additional capitalization as one of the options for financing a large number of state energy construction projects. But so far there are no decisions, everything is at the stage of discussion.

- Do you generally see the continuation of the public history of the merged company?

- Of course.

- Perhaps, over time, the option of switching to the model of Gazprom Energoholding, where there are several market subsidiaries, and their main shareholder is not traded on the stock exchange, is being considered?

- No, this option is not discussed. I think this is wrong. The company must remain in the market. If earlier the two companies were "blue chips", then the combined company will also remain a "blue chip" and will be even more attractive to investors than Rosseti and FGC separately.