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SPAP FUTURE TAKES BACK SEAT TO FNM CASH CRUNCH

Price to rule sale of shipper

Tasked with choosing the best of seven bidders, the FNM state privatisation agency started its selection process for strategic ownership of an 87% stake in Slovakia's only shipping and harbour utility, Slovenská plavba a prístavy (Slovak Shipping and Ports - SPaP) April 20.
The company's management had hoped for a sale which would see a strategic partner bring new plans for restructuring and modernisation of the firm's vessels and harbours, allowing it to compete with more developed western shipping companies and generate more customers.
But the cash-strapped FNM has set price for the stake as its top criterion in selecting a strategic investor.


Bratislava's SPaP shipping firm needs a strong investor if it is to recover; analysts say this is unlikely.
photo: Ján Svrček

Tasked with choosing the best of seven bidders, the FNM state privatisation agency started its selection process for strategic ownership of an 87% stake in Slovakia's only shipping and harbour utility, Slovenská plavba a prístavy (Slovak Shipping and Ports - SPaP) April 20.

The company's management had hoped for a sale which would see a strategic partner bring new plans for restructuring and modernisation of the firm's vessels and harbours, allowing it to compete with more developed western shipping companies and generate more customers.

But the cash-strapped FNM has set price for the stake as its top criterion in selecting a strategic investor.

"Price plays the main role for us," FNM president Jozef Kojda told The Slovak Spectator April 27.

The FNM has 26.3 billion crowns in debt to pay back by the end of this year, most of it needed to redeem bonds issued as part of a second wave of privatisation in 1994.

The fund's cash needs became even more acute after the government last month agreed that money from the 18 billion crown sale of Slovenská sporiteľňa bank originally earmarked for redeeming the bonds would instead be used for two struggling state companies.

Analysts said that in the face of such debts, the fund has little option but to put money first in its privatisation plans. The FNM itself, however, has argued that even were it to make restructuring plans its top priority, in this case there was little it could do to ensure such plans be carried.

"If we set the restructuring plan as our priority, it wouldn't make any difference because after the sale we would have little influence on SPaP," Kojda said.

SPaP worries

So far the shipping firm has attracted seven bidders, two of which have gone public with their bids - Lukoil Arktik Tanker, a daughter of Russian refinery Lukoil, and domestic brokerage house Penta Group.

Penta Group supports the fund's approach to the sale, saying that given its financial squeeze the FNM is right to put ready cash above any restructuring at SPaP.

"The fund desperately needs money, and it's obviously not able to solve the situation in the company [SPaP], so why stress restructuring plans?" said Xaver Gubáš, an analyst with P67 Value, a daughter company of Penta Group.

But SPaP's management has taken a different view on the issue, urging the fund to consider the investor's plans for their firm as seriously as the price of the stake.

SPaP General Director Pavel Šesták said that any future investor should be seriously interested in the company's revival.

"The fund should consider the quality of an investment as well as the price. We wouldn't really like to see somebody come in here lacking serious interest in the company, and then later selling the property and laying off our 1,300 employees. SPaP doesn't deserve such a fate," Šesták said.

"All our company needs is a solid investor who will maintain and renew storage capacities and river vessels. The buyer needs to invest about 120 million crowns ($2.5 million) into the ships, which will be enough to ensure he gets a company with good potential," he added.

But according to Penta Group, which is offering between 200 and 300 million crowns ($4.3 and $6.3 million) for the share, the company's situation isn't quite as straightforward.

Although SPaP closed 2000 with a post-tax profit of 15.1 million crowns, it had run into cash-flow problems as a result of the 1999 Kosovo conflict, said Penta's Gubáš.

Following the NATO bombing of Yugoslavia, SPaP was unable to deliver goods to the Black Sea as the attacks had rendered the lower part of the Danube river un-navigable. It was also unable to transport upstream to western Europe because its ships had old equipment which prohibited them from navigating stretches of the river in Germany and Austria.

"The company doesn't have the kind of potential it had several years ago when its equipment was more modern and it had customers from the former eastern bloc.

"If Penta gets the majority stake, it will have to break the company into bits and carve out all unprofitable operations, cut down the number of employees, and then probably sell the stake when it feels it can make the best possible profit," Gubáš said.

Corporate analysts believe that SPaP should largely resign itself to such a fate, suggesting that any firm which buys the stake will first invest in it, hold it for a while, and later sell it for the best possible price.

"Penta will get this [SPaP] and sell it," said Marek Jakoby of the economic think tank MESA 10.

"Unless the FNM finds other ways to generate money for the repayment of bonds, the situation won't change, and they will be forced to sell their stake to somebody else without caring much about its future.

"They're taking a 'get rich quick' approach."

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