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Cabinet turns to IFC, EBRD to aid bank sale

In a move aimed to instill investor confidence in a dragging privatisation process, the government has offered a 17% stake in one of Slovakia's largest banks, Všeobecná úverová banka (VÚB), to both the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD).
Announcing the start of the next phase in the privatisation of VÚB, along with Banka Slovakia and savings bank Slovenská sporiteľňa (SLSP), managers of the sale J.P. Morgan said the involvement of the institutions in the bank prior to its privatisation would meet government goals for transparency.
"These institutions [IFC and EBRD] provide certain assistance in transforming banks for privatisation. We want to get that sort of input into VÚB as quickly as possible," Walter Schussel, managing director at J.P. Morgan told The Slovak Spectator July 11.

In a move aimed to instill investor confidence in a dragging privatisation process, the government has offered a 17% stake in one of Slovakia's largest banks, Všeobecná úverová banka (VÚB), to both the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD).

Announcing the start of the next phase in the privatisation of VÚB, along with Banka Slovakia and savings bank Slovenská sporiteľňa (SLSP), managers of the sale J.P. Morgan said the involvement of the institutions in the bank prior to its privatisation would meet government goals for transparency.

"These institutions [IFC and EBRD] provide certain assistance in transforming banks for privatisation. We want to get that sort of input into VÚB as quickly as possible," Walter Schussel, managing director at J.P. Morgan told The Slovak Spectator July 11.

The EBRD had expressed an interest in the three major banks in Slovakia (SLSP, VÚB and Investičná a rozvojová banka - IRB) prior to J.P. Morgan's announcement. The institution has already taken stakes in banks across the central European region, and its presence in VÚB is expected to lend both credibility and transparency in the bank's privatisation in the eyes of potential buyers, and practical know-how within VÚB's corridors of power.

EBRD Director of Financial Institutions Kurt Geiger told The Slovak Spectator July 11 that while no formal word had yet come from the government or J.P. Morgan, its offer was being anticipated.

"There is a definite possibility that we would go further with this offer [for the stake in VÚB]" said Geiger. He added: "We have already told Finance Minister Brigita Schmögnerová that the EBRD is willing to play an active role in the privatisation of VÚB. We are definitely interested and our team is ready [when any offer comes]."

Analysts have said that the EBRD's presence in VÚB would give the government's privatisation hopes a real boost before the bank is sold off. "This would certainly strengthen VÚB's standing and is definitely a move to boost the transparency of any deal with the bank," said Michal Kustra, analyst at Tatra banka. The move is also expected to help with subsequent privatisations in Slovakia.

The presence of the EBRD when it held an 11% share in the Czech bank Česká spořitelna (CS) prior to that bank's privatisation in February this year was seen as crucial by insiders at the Czech bank in pushing through what was perceived as a difficult privatisation. It has also been viewed as an example of the influence that the bank can bring to bear as an active minority shareholder - a role it is likely to reprise if it takes the VÚB stake on offer.

"The market sees us as adding credibility to a bank privatisation project because we have a proven track record with these things," said Geiger. He added that the EBRD's experience with CS could be used again in the case of VÚB. "We always take an active role, we are an active investor."

Following the sale of the stake to either the EBRD or the IFC, the state will offer a 67% share in VÚB to a strategic investor. Schuster said that there had already been heavy interest in VÚB from banks both overseas and in Europe. Minister Schmögnerová last month confimred that a similar interest had been shown in SLSP. The tender for the sale of both VÚB and SLSP is officially to be announced in mid-July.

Geiger also confirmed that the EBRD was willing to be involved in the privatisation of SLSP, but would be looking only for a minority stake and not the entire 87% stake offered by the state. "We look for a strong minority share in any bank we go into," he said.

VÚB will be the last of the three banks to be sold, with Banka Slovakia expected to go first, followed by SLSP by the end of the year and then VÚB some three to six months after that. However, the sale of the stake in SLSP will be direct to foreign investors. A short list of suitors for IRB is due to be drawn up by the beginning of September, and an investor chosen a month later.

Minister Schmögnerová has said that the government will be looking for an investor into VÚB who will push lending in the corporate sector and try to revive the country's flagging economy.

The government last autumn put in motion a 100 billion crown ($2.2 billion) clean-up operation at VÚB, IRB and SLSP, transferring classified loans to state debt agencies Slovenská konsolidačna and Konsolidačná banka while other bad and non-performing loans were taken out of the banks' portfolios. The Finance Ministry also hiked the registered capital in VÚB by 10.2 billion crowns, and that of SLSP by 4.9 billion crowns.

Government hopes are running high that the privatisations of VÚB and SLSP can be carried out quickly and smoothly to help swell the state's sagging coffers.

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