* State to buy 50 billion roubles of share issue
* Capital-raising move seen as mini-nationalisation
* High pricing turns off private investors
* Concerns raised over planned use of funds (Recasts lead, adds detail, analyst comments)
By Sonia Elks
MOSCOW, Dec 19 (Reuters) - Russian hydroelectric power company RusHydro started a share placement on Wednesday in which the state was expected to be the only significant buyer, effectively turning the capital-boosting exercise into a mini-nationalisation.
RusHydro is offering 110 billion shares at 1 rouble apiece to fund projects in Russia’s far east, meaning that if fully sold the offering would raise $3.6 billion.
Analysts predicted much of the stock would go unsold, as investors are turned off by the new issue’s overpricing in relation to the market and concerns over the profitability of the planned capex projects it will fund.
The government will inject 50 billion roubles ($1.6 billion) plus equity stakes in other power companies, which could up its stake to as much as 66 percent from the current 60.5 percent.
A RusHydro spokesman admitted: “We do not expect much interest from minority shareholders.”
The recapitalisation of RusHydro, the world’s second largest hydro-electric power producer, has been championed by Russia’s powerful former deputy prime minister, Igor Sechin, now CEO at state-controlled oil major Rosneft.
Sechin, who heads President Vladimir Putin’s strategic commission on energy policy, has faced opposition from some government ministers who want to defend the competitive private power sector that was created in sweeping reforms last decade.
In another sign of resurgent state capitalism, Rosneft is taking over Anglo-Russian oil firm TNK-BP in a $55 billion deal, Russia’s largest ever, that would put two-fifths of the country’s oil production under state control.
New shares in RusHydro are priced significantly above the market price of 75 kopecks. Under Russia’s power sector reforms of the past decade, companies were floated with very low share prices in a bid to make their stock liquid.
“There’s absolutely no reason why investors would pay a premium to the current market price,” said Vladimir Sklyar, head of utilities research at Renaissance Capital.
He added the company may offload around 1-2 billion shares via swaps for shares in a number of smaller companies, such as Irkutsk Energo.
Dmitry Bulgakov, a utilities analyst at Deutsche Bank, said RusHydro’s plans to invest the sale proceeds on four coal-fired power stations in the Russian Far East were ‘quite concerning’.
Expected costs for the projects are high, while tariff structures in the region mean there is no incentive to become more efficient. “These investments are frankly more political than economic,” he said.
”If the Russian government was willing to invest there it could have done so directly instead of through their publicly traded company. “Minority shareholders will suffer as a result.”
RusHydro’s board has been divided over the additional share issue, and five of its 13 board members recently offered to resign over the issue.
The current subscription is limited to shareholders, with an open subscription due to start by March 2013, the company said. ($1 = 30.7959 roubles) (Additional reporting by Megan Davies; Editing by Douglas Busvine and David Cowell)