Ellen Lederman, J.P. Morgan's Head of Investment Banking for Slovakia, met Slovak Foriegn Minister Eduard Kukan on January 26, 1999 in London.
One of the goals set in 1998 by the government of Mikuláš Dzurinda was to gain the trust of international organisations like the European Union, the OECD and NATO as well as that of international investors. One of the most crucial steps towards meeting this goal has been the hiring of respected foreign advisors to manage the privatisation of the state's most lucrative remaining assets.
Big names like JP Morgan, chosen to manage the privatisation of the state banks SLSP and VÚB last December, have been complemented recently by CA IB, chosen to oversee the sale of troubled bank IRB at the end of February, and Deutsche Bank, selected last year to handle the sales of stakes in Slovak Telecom and VSŽ steelworks. All advisors, in turn, have promised to complete the sale of state property in a transparent and profitable way for the Slovak state.
The presence of advisors, usually banks which have networks throughout the world, to guide the process of bank and corporate privatisation makes it easier for Slovak state companies to find foreign strategic partners. According to government officials as well as analysts, these foreign advisors think in broader terms rather than just the local context, and help Slovak banks and companies learn how the global market behaves.
"With advisors guiding the process of searching for a strategic partner, there is a guarantee that a bank will be sold to a good investor," said Juraj Renčko, an advisor to Finance Minister Brigita Schmögnerová.
The advisors also bring Slovak firms knowledge of global markets that is otherwise inaccessible to them. "From the point of view of the government or a company, choosing an advisor is a reasonable step because they themselves usually don't have enough knowledge and experience to guide such a complicated process as the selection of a strategic partner, especially in companies and banks which have economic problems," said Ján Tóth, senior analyst for ING Barings.
According to Tóth, advisors put their reputations on the line whenever they guide a privatisation process. "If the manager fails then it has to bear all the consequences, which of course has an influence on its image," he said.
Renčko agreed, saying that once an advisor wins a tender it takes charge of the sale despite the fact that the government usually makes the final decision.
Both Renčko and Tóth said that presence of an advisor made the process of choosing a suitable partner quicker. "It costs something, but if we [government] pay some money to a respected advisor with a good reputation rather than doing it ourselves, we actually save money," Renčko said.
According to Johannes Kinsky, vice-president of J.P.Morgan in Prague, it's more difficult for advisors to do business in central and eastern Europe than in western Europe. "On the one hand it's less profitable, but on the other hand we learn more, which is a good thing for us," Kinsky said.
Kinsky said the most important thing for an advisor was good co-operation with the government. "We've had good co-operation with the current Slovak government because it understands what has to be done," he said.
He mentioned an example from bank privatisation in the Czech Republic where the government wanted its advisors, Merrill Lynch and Goldman Sachs, to sell two leading Czech banks - Česká Spořitelna and Komerční Banka - without first getting rid of the banks' bad loans. "The Czech government simply placed these reputable firms in front of this impossible task, and it took the government two years to realise that it wasn't possible. Here in Slovakia it took them three months, and they [the Slovak government] were already starting to carve out bad loans from the soon-to-be-privatised banks. This is what every advisor really likes to see," Kinsky said.
According to Tóth, experience in a given region is what usually speaks for or against an advisor. "Talking particularly about advisors for the sale of Slovak banks, I think that the questions raised were more about how many banks bidders had sold in the countries of the Visegrad pact, and how many deals over a certain price they managed," Tóth said.
Kinsky for his part said that it was difficult to find a good team of experts for the sale of a bank in central Europe, because such a team has to show more creativity than they usually have to.
While it takes a few months to advise a bank or company on the selection of its future partner, these months can be useful for the advisors because they learn at first hand the internal workings of their client, knowledge which may help them after privatisation when they seek consulting contracts. "In three or four years all state property in central Europe will be sold. But only when this happens will investors show their real interest to come to these countries. We [J.P.Morgan] will have had experience doing business in central Europe, and we will be able to advise these investors," Kinsky said.
The process of national privatisation in central Europe will be followed by one of regional consolidation, Kinsky added, when large central European companies will merge and create a big consortium. "I see our future in advising these central European companies," Kinsky said.
