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Cabinet ignores Schmögnerová doubts on RIF

The cabinet has ignored doubts raised by Finance Minister Brigita Schmögnerová over the business intentions of the new owner of a lucrative stake in the largest investment fund in Slovakia, the Reštitučný investičný fond (RIF).
Schmögnerová has several times questioned a decision by the FNM national privatisation agency to sell the 28.59% RIF stake to a Slovak-US consortium of investors, saying she fears the buyers may use the stake to squeeze money from RIF holdings.
However, she has found no support among other government ministers to review the choice, allowing the FNM to sign a contract on November 21 with consortium members J&T Bank, Prvá penzijná and the Brookdale Group.


Finance Minister Schmögnerová has expressed worries about the intentions of some financial groups.
photo: Ján Svrček

The cabinet has ignored doubts raised by Finance Minister Brigita Schmögnerová over the business intentions of the new owner of a lucrative stake in the largest investment fund in Slovakia, the Reštitučný investičný fond (RIF).

Schmögnerová has several times questioned a decision by the FNM national privatisation agency to sell the 28.59% RIF stake to a Slovak-US consortium of investors, saying she fears the buyers may use the stake to squeeze money from RIF holdings.

However, she has found no support among other government ministers to review the choice, allowing the FNM to sign a contract on November 21 with consortium members J&T Bank, Prvá penzijná and the Brookdale Group.

Representatives of the consortium and others close to the deal said that Schmögnerová's accusations were groundless.

"This seems to be born from a personal aversion of the minister," said Boris Procik of J&T, spokesman for the consortium.

The deal will bring the FNM over Sk507 million ($10.6 million), money it badly needs to pay off remaining privatisation bonds issued in 1996. In exchange, the consortium wins significant control over minority stakes in about 400 Slovak firms where the RIF holds interests.

About half of these companies are in liquidation or bankruptcy, but the portfolio also includes some of the country's most viable companies, such as the SLSP bank, and state assets which are to be privatised next year, such as electricity utility Slovenské elektrárne, the ZSNP aluminium smelter and the Piešťany spa.

Added to the 10% RIF stake the consortium bought at the same time from the Slovak land fund, the deal gives the new owners almost a 40% share of the restitution fund.

Schmögnerová questioned the trustworthiness of the consortium, saying finance groups such as J&T had in the past used their minority stakes in firms to hold majority shareholders to ransom by securing court injunctions blocking share activity.

"If they act as they did in some past cases, we may see them misusing their position to take advantage of the minority stakes that the fund holds in dozens of significant companies," Schmögnerová told The Slovak Spectator on November 18. "We're talking about their ability to get court verdicts fast and in a form that suits them," she added.

The Finance Minister also attacked the price for both RIF stakes, saying the state could have got more.

The price paid was Sk811 per share, well above the RIF's market share price of Sk520. Schmögnerová argued that the real value of the shares was "well over Sk1,100", and would likely soar as the state firms where the RIF had interests were sold next year.

"If the FNM had held on with this decision it could have generated more money from the RIF stake," she reasoned.

The FNM said that despite the minister's claims there was no reason to doubt the results of the tender.

"The consortium had to demonstrate its experience in managing investment funds such as the RIF. The fund is also satisfied with the price offered by the consortium," said FNM spokesperson Tatjana Lesajová.

The Finance Ministry has often criticised the business practices of financial groups such as self-described corporate raiders Penta Group. Penta, which took over the Sk7 billion VÚB Kupon fund in 1997, has used the fund's minority stakes in a variety of firms to win concessions or rich buy-outs from majority shareholders.

Most recently, Penta used its minority stake in state insurer Slovenská poisťovňa to win a concession from the Finance Ministry that Penta's stake would be sold with the state share later this year.

However, Procik said that it was not the J&T consortium's intention, as the key shareholder at the RIF, to cause obstructions with companies where the fund owned minority stakes, especially those that were scheduled for privatisation.

"Our intention is to do the opposite - with our experience we can help with the privatisations," Procik said.

Lesajová added that the consortium's scope for misbehaviour was limited because the FNM and the Slovak land fund had collectively maintained a 15% stake in the RIF which they could use to block decisions harming other shareholders.

J&T's Procik said that Schmögnerová's attack against the consortium was not the first time the Finance Minister had refused to accept his firm.

Earlier this year, the government's privatisation adviser for the sale of Banka Slovakia refused to issue an information memorandum to J&T, citing its lack of experience in the banking sector.

"Banka Slovakia would fit our business because we already have an investment bank in the Czech Republic," Procik said. "This is further proof that the minister does not accept us."

Representatives of similar finance groups argued it would not be in the consortium's interest to create problems with minority stakes.

"Causing obstacles to majority shareholders in those companies where the RIF holds a stake would only harm their name. I don't see them going to such extremes as Penta Group, for example," said a financial market source who requested anonymity.

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