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Globtel sell-off will grant power maker a cash boost

The Slovak Economy Ministry is moving ahead swiftly on the recently announced sale of its 36% stake in mobile network operator Globtel GSM. The sale is expected to bring billions of urgently needed crowns into five state-owned utility companies whose debts are creating a heavy drain the state budget.
Economy Minister Ľudovít Černák announced last week that 3.6 billion crowns ($86.72 million) is the minimum bid the government will accept for the Globtel shares. About 2 billion would flow into energy company Slovenské Elektrátrne (SE), which owns the majority of the govenment's share of Globtel. The estimate was based on offers submitted by investment banks, Černák told journalists.


Though the government says the Globtel sale proceeds will not go directly to the budget, the funds will indirectly help the state.
photo: Ján Svrček

The Slovak Economy Ministry is moving ahead swiftly on the recently announced sale of its 36% stake in mobile network operator Globtel GSM. The sale is expected to bring billions of urgently needed crowns into five state-owned utility companies whose debts are creating a heavy drain the state budget.

Economy Minister Ľudovít Černák announced last week that 3.6 billion crowns ($86.72 million) is the minimum bid the government will accept for the Globtel shares. About 2 billion would flow into energy company Slovenské Elektrátrne (SE), which owns the majority of the govenment's share of Globtel. The estimate was based on offers submitted by investment banks, Černák told journalists.

The money generated by the sale will go directly into the budgets of the five utitily companies which share partial ownership of Globtel and "by no means will be used to boost the state budget," Černák said.

But the influx of money will potentially save the state billions of crowns it was due to pay in state-guaranteed loans on the energy companies' behalf. With its stake in Mohovce nuclear facility and other liabilities, SE alone owes more than $4 billion to various creditors.

The biggest stake in flourishing Globtel is held by France Telecom Mobiles International with 35%, while Slovak holding company Slovtel controls 29%. The state's shares in the company are divided between Slovenský Plynárenský Priemysel (Slovak Gas Comany- SPP), which holds 6.83% of the total company, SE (Slovak Power Plants), which owns 18.91%, and power distributors Západosolvenké, Stredoslovenské, and Východoslovenské Energetické závody, who share 10.26%.

Power producer in need of cash

At the end of March, the state had to dish out $27 million in loan guarantees on behalf of SE, Slovakia's monopoly power producer. Construction of Slovakia's second nuclear power plant in Mochovce left the company owing some $80 million to Russian nuclear energy firms, all of it guaranteed by the state. The current low prices of electric energy are not enough to finance SE's capital investments.

In fact, this was not the first time the state had to meet SE's obligations. Earlier this year, the state budget paid $13.6 million in interest on a government guaranteed loan for Mochovce to construction company Vodohospodárska Výstavba (VV). VV said it was unable to make the payment, since SE was not paying VV.

All in all, SE has said it should pay some 4.7 billion crowns in loan payments this year. The 1999 state budget has made provisions to spend just four billion crowns on all exercised loan guarantees, which will not nearly be enough if it is called on to cover SE debts.

Moving quickly

The pace at which the sale has proceeded is just one of a number of indicators which show the government's eagerness to push the Globtel transaction forward.

Though the idea of selling the stake in Globtel was first publicized on April 7, an investment bank to arrange the sale was due to be selected from among the five applicants as early as April 15.

The power makers will also get their cash quickly, as one of the conditions in the tender is that the investment bank which arranges the sale will immediately provide a loan to the sellers equal to 50% of the estimated value of the Globtel stake, Černák said.

The sale is taking place at a time of general skepticism over emerging markets investment and skepticism about the Slovak economy's prospects specifically. Analysts say that in an industry so heavily dependent on consumers' discretionary spending, a much better price could be obtained at a different point in the business cycle.

Furthermore, unlike in the planned privatization of the state-run monopoly Slovak Telecommunica-tions, the government is not making any claims that the sale will benefit the company through the entrance of a foreign investor. The purpose of the Globtel sale is simply to raise cash.

Finally, the Telecom ministry has been quick to bend the original rules mandating that a high percentage Globtel has to remain in Slovak hands and that no single shareholder can own more than 40% of the company. The ministry said last week that only 25% percent of Globtel must stay Slovak owned. Given the current shareholder structure, with 29% owned by Slovtel, the utilities' 36% stake can thus be passed to a foreign investor without further problems.

Who will buy Globtel?

Globtel, which entered the market in 1996, is currently Slovakia's largest mobile operator. Globtel's main competitor, Eurotel, has not fared nearly as well as Globtel in attracting customers although it has been in the analog mobile market since 1991. Globtel boasts 380,000 subscribers while Eurotel has some 280,000 subscribers on both of its networks (digital GSM and analog NMT).

According to original contracts in the Globtel consortium, current shareholders have the right of first refusal on the stake sale. Černak says that France Telecom and Slovtel will be offered the 36 percent very soon.

"At a price that will very quickly be set on the basis of at least three independent audits, the stake will be offered to current shareholders," he said. Reuters news agency has reported that France Telecom is already considering raising its stake and Danish TeleDanmark is also looking at the opportunity.

The minister said he is not expecting any domestic bidders. "I would welcome a direct foreign investment, which is preferable to increasing Slovakia's debt burden," he said.

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