Russian Direct Investment Fund pens second deal

The Russian Direct Investment Fund (RDIF) and a consortium of investors including Xenon Capital Partners’ Rusenergo Fund and the Macquarie Renaissance Infrastructure Fund have acquired a 26.4 percent stake in power company Enel OGK-5 from Russian energy group InterRao.

The deal is the government-backed vehicle’s second deal since its creation last year. In January together with the European Bank for Reconstruction and Development, the RDIF bought a 7.5 percent stake in Moscow's MICEX-RTS stock exchange for $300 million.

The RDIF will invest $137.5 million in the Enel deal, with its co-investors contributing $487.5 million, according to a statement.

In each investment it makes, the RDIF is required to secure co-investment that at least matches its own commitment, thereby acting as a catalyst for direct investment into the Russian economy, the fund says.

The deal could eventually be worth $750m. The consortium will pay InterRao a fixed consideration of $625 million, and will pay an additional $125 million if the group of investors exceed an 18 percent internal rate of return on the investment, according to a joint statement.

InterRao will also receive a carried interest of 20 percent of the profits earned by the investment consortium, said the statement.

Enel OGK-5 is a leading Russian wholesale producer of electric power and heat and has four production branches across Russia, with a total installed capacity of nearly 10,000 MWt, according to the company. The deal represents the largest ever direct investment in the Russian power sector, the RDIF said.

Kirill Dmitriev, chief executive of the RDIF, claimed the deal was proof of significant growth in international interest toward investments in the Russian economy, especially following the presidential elections.

The deal continues an upward trend in private equity activity in Russia. An Ernst & Young study this month showed private equity funding is becoming increasingly popular among Russian businesses, as bank credit has become costlier and global financial market conditions are deterring initial public offerings as an option for raising capital.

Private equity investments in 2011 doubled compared with 2010 figures to $4.2 billion while deal volumes also climbed and average deal value grew from $50 million to $80 million, the study said.

With the RDIF, the Russian government has signalled its intention to develop private equity investment in the country. The fund is backed entirely by the government to the tune of $2 billion over the next five years, and in September it appointed some of private equity’s biggest names to its international board of advisors, including Steve Schwarzman, Leon Black and David Bonderman.