Russian Communal Systems - Pre Equity Financing

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Ahead of its dissolution in July 2008 and through an auction held on 22 May 2008, the Russian state electricity company RAO UES agreed to sell to Indville Management Ltd., an affiliate of Integrated Energy Systems, its 25 percent plus one share stake in Russian Communal Systems (“RKS”) for a price consideration of RUB 3.1 billion. The project involves a Pre-Equity Financing in the form of a loan to Indville Management allowing it to acquire the RKS shares sold by RAO UES by settling the auction price. This Pre-Equity Financing transaction may be followed by an equity transaction whereby the Bank would consider buying itself a minority equity stake in RKS, under terms to be negotiated after signing of the Pre-Equity Financing and subject to all relevant approvals as well as the publication of the corresponding project summary document in due course. Transition impact will be realised through: (i) promotion of competitive tendering, as RKS will agree to only pursue new opportunities where the award is done on a competitive basis and in a fair and transparent manner; (ii) setting standards for business conduct as RKS will commit to proceed with its reorganization in a fair and transparent manner and to implement IFRS accounting as well as establish medium–term business planning procedures; and (iii) RKS and Integrated Energy Systems will develop and agree with the Bank on an action plan within 6 months of the first disbursement, which shall provide for the rebalancing of the RKS contract portfolio in accordance with a detailed schedule and in accordance with a pre-agreed criteria that provide both the public and private entities a balanced risk-return profile. Indville Management Ltd., a company controlled by Integrated Energy Systems. Pre-Equity Financing in the form of a loan of up to RUB 3.1 billion. Up to RUB 3.1 billion. Screened C/0. The proceeds of the proposed Pre-Equity Financing will not be used to finance any CAPEX investments and, therefore, there are no environmental impacts associated with this project. The Borrower, Indville Management, does not have or operate any physical assets, therefore no environmental audit is needed. However, there are risks associated with the potential second stage of this transaction which may involve the Bank taking a minority equity position in RKS. RKS provides municipal water, wastewater, district heating and electricity distribution services and operates a broad range of assets. Due diligence would be carried out prior to the Bank’s potential equity investment is proposed for Board consideration. The due diligence would include a Corporate Environmental, Health, Safety and Social Audit as well as audits of individual RKS assets, operations and investment programmes. Following these audits an Environmental and Social Action Plan (ESAP) satisfactory to the Bank would be developed. There would be a new PSD for the equity transaction which would summarise the due diligence findings and the ESAP. None. tba