THE STATE will soon select an investment bank to oversee the closely-watched sale of its 49-percent share in telecommunications giant Slovak Telekom (ST). The country’s privatisation agency, the National Property Fund (FNM), addressed 10 investment banks, six of which responded, and the FNM shortlisted three global players: JP Morgan, Citi and UBS, the Sme daily reported on May 7.

No tender has been announced for the process even though the bill of the privatisation advisor will be paid by the state, Sme noted. Nevertheless, the pool of top global investment banks was a result of an agreement between the state and the majority shareholder of the company, Deutsche Telekom, with observers suggesting that this practice is not unknown in the private sphere either. Non-parliamentary party NOVA is suggesting the whole process is infected with conflicts of interest.

To be able to sell its share in ST, the Slovak government passed on April 23 an amendment to the privatisation act extending the means for the sale of state assets to include the stock exchange, which Economy Minister Tomáš Malatinský called “the most transparent way”.

The new legislation still needs approval by the full parliament, which is expected.
The draft amendment creates legal ground for the sale of shares held by the state or also the FNM, through capital markets via an initial public offering (IPO) or a dual track that combines an IPO and a direct sale. Thus far, the rules have limited the sale of state shares only in the form of public tenders, public auctions, direct sale or through coupons and bonds. The new legislation should be effective as of July 1.

The Finance Ministry hopes to see money obtained from the sale to reduce state debt.

The banks

The winner will be picked by a three-member commission consisting of bankers, while the role of the advisor will be to value the state’s stake and to make recommendations for the sale, including whether it should be sold through the stock exchange or directly to majority owner Deutsche Telekom, according to the Hospodárske Noviny economic daily. The daily also noted that Deutsche Telekom has previously been a client of JP Morgan and Citi.

The knowledge of the environment of the ST and Deutsche Telekom was one of the criteria when assessing the applications, FNM spokeswoman Miriam Žiaková told Hospodárske Noviny.

The original pool of the 10 global investment banks stems from the memorandum of understanding on the sale of the 49 percent share signed between Deutsche Telekom, the Slovak Economy Ministry, FNM and ST.

The shareholders agreed that 10 top global investment banks – Goldman Sachs, Morgan Stanley, JP Morgan, Citi, Credit Swiss, USB, Deutsche Bank, Bank of America Meryll Lynch, Barclays and Macquarie – qualify within the selection process organised by the Slovak shareholders, according to the document published on the Central Registry of Contracts.

In the event that an investment bank other than those listed above participates in the selection process and eventually wins the competition, Deutsche Telekom will have a veto right on the selection or engagement of the bank, according to the document.

Even in the private sphere the shareholders usually agree on a list of advisors to whom they entrust sensitive company data, TaylorWessing e/n/w/c law firm partner Andrej Leontiev told Sme.

“If the minority owner wants to value its share, it is a forthcoming step when it is allowed to access sensitive data on the company,” Leontiev told Sme, adding “it is just understandable that the valuation can be done only by advisors trusted by the board controlled by the majority shareholder”.

While the FNM remained tight-lipped about the names of the three shortlisted banks, three independent sources confirmed for Sme that these are JP Morgan, Citi and UBS, with JP Morgan already having a business history with Deutsche Telekom, according to Sme.

“There are not that many top investment banks which have experience with telecommunications, and if you look at the list of banks that service Deutsche Telekom, you will find they are all the large banks,” said State Secretary of the Finance Ministry Vazil Hudák, as quoted by Sme.

Hudák said that the most important factors in selecting an advisor are the preferences and how much revenue it is able to secure for Slovakia.

NOVA sees conflict

NOVA Vice Chairman Marcel Klimek called a press conference on May 7 to announce that he sees conflicts of interest in the process, naming JP Morgan and Citibank.

The first conflict of interest lies in the fact that JP Morgan is corporately affiliated with Deutsche Telekom and thus also has the right of first refusal, said Klimek, as quoted by the TASR newswire. Klimek also suggests that the consultant is chosen by a three-member committee under the auspices of the Economy Ministry, with two of the committee members being subordinated to Hudák, a former JP Morgan vice-president, TASR reported.

Klimek suggests that since Hudák had tenure with Citibank, too, this investment bank is also in conflict of interests. The party called on Prime Minister Robert Fico to announce a regular tender for the privatisation advisor.

Privatisation?

Fico is known for his negative stance on the privatisation of state assets, and has avoided the term when referencing the sale of the 49-percent stake in ST, which the government hopes to cash in for €1 billion. Three years ago, as an opposition politician, he clearly spoke out on selling off more state assets. He and his Smer party insist the current sale is meant to rectify mistakes made by the first cabinet of Mikuláš Dzurinda, which orchestrated the sale of the 51-percent stake in the company to Deutsche Telekom.

The current Fico government claims that the sale of the 49-percent stake in ST does not constitute privatisation because the state is receiving no benefits from its current stake. The German majority owners block dividend payments to the state, they say.

“One rightist government was [engaged in] privatising, apart from all others, also Telekom,” Kažimír said, as cited by the TA3 news channel. “It privatised it in a way that we do not receive any benefit from it.”

He recalled that each finance minister had to argue with shareholders and representatives of ST each year over how the dividends would be paid out.

“We do not have control over the operation of Slovak Telekom, over the payment of dividends,” said Kažimír, as cited by TASR. “We decided to sell this stake because after the bungled privatisation we are not able to get effective results from it.”