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Erste tipped as SLSP buyer for $360 million

Austrian bank Erste Bank was revealed as the Privatisation Ministry's preferred choice as winner of an 87% stake in the country's largest bank, Slovenská sporiteľňa (SLSP) December 13, after the finance house put in an 18.4 billion crown ($360 million) bid for the share.
The Austrian bank must now wait until December 20 for a final decision from the cabinet, but it is widely expected that there will be no objections to the choice and that the stake will be in Erste's control by early January.

Austrian bank Erste Bank was revealed as the Privatisation Ministry's preferred choice as winner of an 87% stake in the country's largest bank, Slovenská sporiteľňa (SLSP) December 13, after the finance house put in an 18.4 billion crown ($360 million) bid for the share.

The Austrian bank must now wait until December 20 for a final decision from the cabinet, but it is widely expected that there will be no objections to the choice and that the stake will be in Erste's control by early January.

Announcing the news, Robert Merva, spokesman for the Privatisation Ministry, said: "The Privatisation Ministry has accepted the recommendation of the bank steering committee for a strategic investor into Slovenská sporiteľňa. The most suitable bidder was Erste Bank. Government advisors will soon meet with Erste Bank representatives to discuss the [sale] contract documentation."

The price offered, almost twice the bank's projected year-end equity of 10.1 billion crowns, had been in the upper region of many analysts' estimates as to what the stake would fetch, but below some press reports of 30 billion crowns as a possible offer.

Andreas Klingen, vice-president of J.P. Morgan, the privatisation managers, told The Slovak Spectator December 13: "The price was a good and appropriate one, and a good result. Press reports that suggested that 30 billion was an offer for the share obviously came from people who know nothing about how to value a bank."

He added: "The offers from all the banks throughout the process were improved upon."

The release of the news came after a Privatisation Ministry request on December 5 to have the final three bidders - Erste along with Bank Austria and Italy's UniCredito - resubmit their final offers, as Privatisation Minister Mária Machová gave the banks one week to "improve their submissions".

J.P. Morgan's Klingen explained that the one week delay had not been because of any problems with the privatisation, but because the advisors believed they "could achieve a higher value for the stake".

"We felt that we could get the banks to improve their bids, and that is precisely what happened," he said.

Despite J.P. Morgan's praise for the choice, some sources close to the deal said that they were disappointed Erste had been chosen ahead of what they said were better strategic partners for the bank.

"Erste bank is the worst choice out of the three banks. They are the smallest, and they won't bring on SLSP as quickly as either UniCredito or Bank Austria would have done," said one source.

He added: "They had to borrow money to buy the stake, and they took on Česká spořitelna [sporiteľňa's Czech sister bank - ed. note] last year and we all thought that was a bit too much for them. Now they're taking on Slovenská sporiteľňa. It's a bit too much expansion too fast."

The government had made it clear throughout the tender that price was a major concern in selecting an eventual winner. Speaking before the tender, Pavol Ondriska, analyst at Slávia Capital brokerage house, said: "The government has said that there are other considerations but the price will be the main thing behind their decision [on the sale]. They have to get as much money as possible to support their restructuring of the sector."

The government spent more than 100 billion crowns in clearing up poor loan portfolios at banks due for privatisation, with nearly 30 billion crowns being transferred from SLSP alone.

"It's rational that the government would go for the best bid, and Erste put in that bid. Therefore they got the stake," said the source.

While the result leaves both Bank Austria and UniCredito disappointed, Klingen said that the tender for the country's second largest finance house, Všeobecná úverová banka (VÚB), slated to start some time early next year, may see at least one of those bidding again.

"All the banks involved in the [SLSP] tender were suitable buyers. Although Bank Austria has said that it will not bid for VÚB if they fail with SLSP, there is nothing to stop those banks that have failed in this tender from going for VÚB," said Klingen.

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