Updated June 23, 2008

   Energomash Group Enterprises completes placing 10,5% stocks among the western investment funds. Instead of expected $460 million the Group will attract no more than $300 million. These facilities will be used to refund its record debt – $1,32 billion. The Group has to double EBITDA current year to pay off the debt. However, analysts doubt the company would manage to do this.

   Energomash Group reported that "completes private placement of its 10,5% stocks". They explained that on June, 19 the bid book had been closed and by means of it "some large western investment funds (their names are not specified) would purchase stocks of Energomash parent company – the British Energomash UK Ltd. The Group would attract $300 million within placement, as it as said in its press-release. According to sources aware of placement, the core part of this money would give "three funds that Energomash considers as anchor investors, and other five funds will purchase the rest stocks".

   In Energomash say that "successful private placement is one of the major steps on the way to IPO". It is planned to 2009 end – early 2010. The Group refused to announce other details, and banks, private placement managers (Uralsib and Credit Suisse), refused to comment the situation.

   Energomash has consolidated Energomashcorporation JSC controlling interest (owns works in Belgorod, Barnaul, Engels, Yekaterinburg, Sverdlovsk area, Volgodonsk, Chekov), GT-TETS Energo assets (constructs and manages objects of small-scale power), as well as engineering centers network. Energomashcorporation chief executive Alexander Stepanov owns more than 90% Energomash stocks, the rest belongs to top-management. According to own unofficial data of the Group, in 2007 its preliminary revenue by IFRS (International Financing Reporting Standards) totaled $645 million, EBITDA was $160 million.

   About Energomash intention to hold private placement became known this spring. Due to it the Group intends to refund partially the $1,32 billion debt that has arisen within the project funding of small-scale power plants construction. In Energomash explained unofficially they would like to attract around $460 million within private placement. However, stock exchange analysts said that Energomash would hardly attract more than $260-300 million. And it happened so. Mikhail Pak from Metropol Investment Company says it is not surprising and explains that Energomash has had high debt load, and the market has not understood the prospects of GT-TETS Energo expensive project. Moreover, the situation at the stock market is unstable.

   Energomash does not disclose the debt structure. According to sources in the Group and at the banking market, the Savings Bank is the largest lender (more than $590 million), and other banks hold around $340 million more, and around $150 million more fall to two bond loans. Energomash main debt part (70-75%) is paid off in 2009. Current year the Group should redeem around 20% of the debt, and this would be done due to facilities attracted within private placement, as says one of the sources. The rest debt part would be refunded. Moreover, according to this year results, Energomash EBITDA "has almost doubled" and will total around $300 million, and that will also facilitate loans redemption.

   However, analysts do not understand due to what the Group intends to double EBITDA. As Mikhail Lyamin from Bank of Moscow marks, if information about 2007 EBITDA is true, it turns out that Energomash is "the rather effective company with 25% level profitability". Meantime, as he marks, Energomash enterprises did not receive RosAtom large orders, and GT-TETS Energo project had not been launched yet, in fact, and "probably, the most viable is only pumping equipment production". Mr. Lyamin does not eliminate that such high 2007 EBITDA has arisen after Energomash had written in it down "some non-operating revenues like overvalue and sale of assets". And if it is so, it is odd, how EBITDA can double. On the whole analysts say they can not estimate adequately Energomash solvency until the Group IFRS being published.