September 23, 2008
Dubai World Pulls Out of OGK-1 Acquisition Bid
The Emirate of Dubai's sovereign investment fund, Dubai World, has pulled out of its $5.3 billion bid to acquire Russian power generation company OGK-1 from RAO Unified Energy System citing deteriorating market conditions.
The Russian energy ministry has reportedly said that the OGK-1 sale would not make sense at the current time as its market value has fallen substantially. The Russian government indirectly controls the power generation company through RAO Unified Energy System, the state-controlled energy holding company.
Dubai World partnered with Russian energy trading firm Roskommunenergo for the initial deal to acquire OGK-1. The Moscow-based energy trading firm was bidding on behalf of Dubai World, which guaranteed Roskommunenergo $100 million up front as part of the total consideration.
Roskommunenergo had reportedly offered $518 per kW of power capacity at OGK-1, which is seeking to bring in much needed cash to finance expansion at facilities that primarily serve Russia's oil and gas industry.
Dubai World has until October 1, 2008, to perform due diligence on OGK-1 and set the final terms of its relationship with Roskommunenergo if it decides to go forward with the acquisition. Industry sources have expressed doubts over the possibility of the deal going through on the present terms in relation to a market where OGK-1's value has seen a 70% fall.