Deputy PM for Economy Ivan Mikloš (right) announces progress on SPP flanked by sale advisor Michal Šušák of CSFB.photo: TASR
"Cabinet's refusal to cut the stake, the decision to keep the majority board representation, and not to set a minimum price - this is definitely the best scenario for investors."
Deutsche Bank analyst Jeff Gable
Months of uncertainty concerning a privatisation plan for a 49 per cent stake in gas utility SPP ended February 20 when cabinet confirmed that the entire stake would be offered to a strategic investor, rather than divided as a government party had suggested.
The compromise, coming after weeks of belated political discussions on the wisdom and transparency of the sale strategy, left the seven bidders for SPP free to submit binding offers by the February 28 deadline for the massive property.
Market analysts also said it was a reassuring sign that political and economic cooler heads continued to rule the country.
Jeff Gable, an analyst with Deutsche Bank in London, said: "This has to be good news. In the range of possible outcomes, it's absolutely the best one."
Bargain reached
The cabinet decided that half of the revenues from the utility sale, which could bring anywhere from Sk100 to Sk150 billion, would go to a special National Bank of Slovakia account to fund pension reform.
The original plan had earmarked the fixed sum of Sk55 billion for the expensive reform, but the former communist Democratic Left Party (SDĽ) had objected that more funding was needed.
In return for the compromise, the SDĽ backed down from its earlier demand that only 24 per cent be sold, and 25 per cent of shares transferred to insurer Sociálna poisťovňa to fund pensions.
"This agreement is basically just a technical solution that changes nothing in the sale plan for SPP," said Deputy Prime Minister for Economy Ivan Mikloš.
"There is no change. The privatisation is going forward according to the way we announced at the beginning," said Prime Minister Mikuláš Dzurinda.
Danger averted
Market analysts had before warned that any delay or last-minute changes to the SPP sale, one of the biggest privatisations ever in central Europe, could seriously damage Slovakia's reputation abroad. Mikloš said that any fundamental changes to the sale conditions would in effect mean scrapping the six-month old tender.
Seven companies remained in play for the stake after completing thorough audits (due diligence) at SPP. The lineup includes a consortium between Rurhgas, Gaz de France and the Italian Snam, the Russian Gazprom, as well as the US Williams.
The French TotalfinalElf was also reported to be competing.
Michal Šušák, a representative of the privatisation advisor Credit Suisse First Boston, refused comment for The Slovak Spectator on the government breakthrough, but told Reuters February 6 that investors had been taking the last-minute challenges in stride.
"There was some nervousness, I believe, but I don't want to over-exaggerate that. They watched carefully. They listened to the media and read the press, and I would say they considered it more important to live with the tension," Šušák said.
Although the SDĽ had voted with the rest of the cabinet in June 2001 in favour of the 49 per cent sale strategy, one of its senior members, Labour Minister Peter Magvaši, suggested several months later that only 24 per cent should be sold.
He was later joined by Smer party head Robert Fico, who called for a referendum on the SPP sale and then recommended disposing of a far smaller SPP stake, and President Rudolf Schuster, who advised the government to publicly declare how much money it wanted for SPP.
"The sale of a 49 per cent stake in SPP, the way it has been approved, would be a disaster for Slovakia", said Magvaši in late January, who repeated similar comments as late as February 18.
The government is offering management control of SPP to the strategic investor, a condition that also aroused much political controversy.
Ratings agency Fitch, in electing not to raise Slovakia to investment grade February 4, cited worries that the SPP sale would be torpedoed by the SDĽ as among its main reasons for not lifting the country's international credit standing.
Gable said that if the SDĽ had managed to change the conditions, "it would have had a very dramatic impact on the SPP sale as well as on privatisations going forward in other sectors. Changing the terms a week before the end would have been a pretty negative signal.
"However, in light of cabinet's refusal on February 20 to reduce the stake from 49 to 24 per cent, as well as the decision to stay with the majority representation for the investor on the board of directors, in the decision not to set a minimum price for SPP - this is definitely the best scenario from the investors' perspective."
But Marek Jakoby, an analyst with the Mesa 10 think tank in Bratislava, said damage from the insecurity surrounding the sale could already be irreversible, with bidders factoring it in to their offers.
"This political debate has probably already had an effect on offers that we are likely to see from potential bidders," he said.
Author: Martin Karchňák
