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ANALYSTS SAY 1999 PRIVATISATION AMBITIONS WERE UNREALISTIC, BUT POTENTIAL BUYERS UNFAZED

Bidders still drawn to delayed ST sale

The sale of a 51% stake in the state-run telecom monopoly Slovenské Telekomunikácie (ST) remains blocked by a protracted legal battle between ST and Austrian CDI Radio. But although the conflict threatens to further delay the date on which ST will finally be sold, investment professionals remain calm, and say the Slovak government is doing a good job of shepherding the process along.
Stanislav Vanek, the director of the Telecom Ministry's Regulatory Section, explained that the legal dispute had its roots in an agreement signed 10 years ago by CDI with the state-run Slovak Radio channel. The deal gave CDI the right to broadcast via frequencies covering all of western Slovakia, but was later disallowed by ST because "the conditions were not consistent with legislation of the Slovak broadcasting act."

The sale of a 51% stake in the state-run telecom monopoly Slovenské Telekomunikácie (ST) remains blocked by a protracted legal battle between ST and Austrian CDI Radio. But although the conflict threatens to further delay the date on which ST will finally be sold, investment professionals remain calm, and say the Slovak government is doing a good job of shepherding the process along.

Stanislav Vanek, the director of the Telecom Ministry's Regulatory Section, explained that the legal dispute had its roots in an agreement signed 10 years ago by CDI with the state-run Slovak Radio channel. The deal gave CDI the right to broadcast via frequencies covering all of western Slovakia, but was later disallowed by ST because "the conditions were not consistent with legislation of the Slovak broadcasting act."

The case resurfaced late last year when the Bratislava I regional court issued an injunction blocking the state's handling of its shares in ST. But after the ministry appealed the decision, the daily Národná Obroda reported on January 17 that the judge who issued the injunction has since been replaced and that a new verdict would be handed down by the end of January.

The court battle has made it unlikely that ST will get an investor before the second quarter of 2000, but investment analysts remain upbeat about the cabinet's handling of the process to date.

"The delays are not wonderful news, but they're not the end of the world," said Matthew Vogel, senior economist for emerging markets at Merrill Lynch in London. "If you step back and look at other countries in the region, there are delays everywhere, even in countries perceived to be safer havens for investors."

Making strides

Vogel said that the Slovak media's portrayal of the government as "bungling" the privatisation process was unfair. "The current government inherited some problems, but looking back on last year, they did a pretty good job," he said.

Vanek added that the ministry had recently advanced the privatisation process by securing the FNM privatisation agency's approval of a draft shareholder agreement and a draft sales contract for ST on January 18.

J. Russell McGranahan, a senior lawyer with the Bratislava office of the legal firm White & Case, which is part of an advisory consortium on the ST deal, explained that a shareholder's agreement was a standard step whenever shares of a company would be owned by more than one party - which in the case of ST would be the Telecom Ministry, the FNM and a strategic investor.

The next step, Vanek explained, was for all bidders to prepare their official proposals, "the first phase" of the privatisation process and one which he hoped would be finished by the end of February.

Despite the progress made, however, Vanek said he feared that potential investors were losing patience with the constant delays. "I think they are not happy with the procedure so far," he said, without elaborating. "Slovakia needs a transparent tender, and we have a chance to accomplish this here."

But again, analysts said that such fears were unfounded. "The delays are not a big issue," said Michal Kustra, an equity analyst for Tatra Banka. "The ministry made unrealistic projections saying the privatisation would be finished by the end of 1999. Whenever I spoke to investors, I always said it would be done by the second quarter of 2000, even though the government was giving earlier dates."

"They are facing very complex issues," Vogel added. "Most investors are pretty impressed with what they've achieved."

High interest

As the delays have mounted, so has the number of potential bidders. In December, Vanek said that five firms had expressed interest in ST, but on January 14, Telecom Minister Jozef Macejko said the list had grown to 10, although he declined to name the companies involved.

One firm not hiding its interest is Telekom Austria (TA), which told The Slovak Spectator on January 19 that they had decided to enter the fray.

"We are definitely interested in bidding," said Kristian Halbritter, TA's Head of International Relations. "We see a lot of potential there, and it is in line with our developing strategy of expanding internationally."

France Telecom was also reported to be interested. According to the SITA news agency, France's Deputy Industry Minister Christian Pierret met on January 11 with Slovak Deputy Prime Minister for Economy Ivan Mikloš in Bratislava to say that if France Telecom's bid to buy into Polish Telecom failed, they would pursue the ST stake.

The ST race so far has suffered only one definte drop out. Norwegian telecom firm Telenor abandoned their privatisation hopes on January 18, as Telenor Country Manager Are Mathisen said the failure of a planned merger between Telenor and Telia of Sweden had made a bid on ST impossible.

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