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Aluminum giant sold off, investors unimpressed

The new owners of what had been one of the last big Slovak state properties, aluminum manufacturer ZSNP, were finally introduced to the public at an August 20 press conference in the central Slovak town of Žiar nad Hronom. But stock market analysts said the public event came too late, as the murkiness of the privatization deal had done further damage to Slovakia's economic reputation.
ZSNP's majority owner is now Žiarska Hutnícka Konzor-cium (ZHK), a consortium controlled by insurance company VSP Tatry with a 60% stake. ZSNP management, which has been trying to acquire the Slovak state's share in the aluminium producer for the past few years, holds a 40% stake in ZHK. Lesser stakes in ZSNP are now held by the town of Žiar nad Hronom and the municipality of Ladomerská Vieska.

The new owners of what had been one of the last big Slovak state properties, aluminum manufacturer ZSNP, were finally introduced to the public at an August 20 press conference in the central Slovak town of Žiar nad Hronom. But stock market analysts said the public event came too late, as the murkiness of the privatization deal had done further damage to Slovakia's economic reputation.

ZSNP's majority owner is now Žiarska Hutnícka Konzor-cium (ZHK), a consortium controlled by insurance company VSP Tatry with a 60% stake. ZSNP management, which has been trying to acquire the Slovak state's share in the aluminium producer for the past few years, holds a 40% stake in ZHK. Lesser stakes in ZSNP are now held by the town of Žiar nad Hronom and the municipality of Ladomerská Vieska.

"We don't have any ambition to interfere with this professionally managed aluminum maker," declared Michal Němec, the general director of VSP Tatry. "We have full confidence in the current management, which will direct the strategic development of ZSNP." According to Milan Rehák, chairman of the executive committee of the Slovak state property agency, the FNM, VSP Tatry had been selected as an investor because of the aluminum factory's need of capital for restructuring and development.

Hurt confidence

With overall assets of around 20 billion Slovak crowns ($571 million), the ZSNP deal was one of the last big direct privatization deals under the current government of Prime Minister Vladimír Mečiar. The FNM sold its 74% stake in ZSNP in mid July for 65 million Slovak crowns ($1.86 million), or 15 crowns (40 cents US) per share. ZSNP shares, which are traded on the registered market of the Bratislava Stock Exchange, were hovering at around 80 crowns at the time of the sell-off.

The FNM justified its decision to dump ZSNP at knock-down prices as a function of the aluminum company's 487 million Slovak crowns ($13.9 million) in consolidated losses by the end of 1997, and the new investor's promise to plough 1 billion crowns into ZSNP by 2003.

But market analysts said that in disposing of the shares to an unknown investor whose ability to bail out ZSNP had not been demonstrated (nothing was known about ZHK until the August 20 press conference), the FNM had dealt another blow to investor confidence.

"Selling big state companies to unknown buyers is nothing exceptional in Slovakia. After the privatization of such companies like Slovnaft, Nafta or VSŽ, I am not surprised any more by similar deals," said an equity analyst at a foreign bank in Slovakia, who wished to remain anonymous.

"What this means is that foreign investors got another signal to keep their wait-and-see attitude and reconsider plans to invest in Slovakia until the whole privatization process is over and until they find out who are the owners of companies they would be eventually interested in investing in," said another Bratislava-based analyst.

Stock brokers too said the privatization of ZSNP below market price was another blow to the Slovak capital market, adding that they were registering large offers by foreign investors to sell ZSNP shares regardless of the losses resulting from the currently low price of the issue.

Around 15% of ZSNP basic capital is traded on the Bratislava Stock Exchange, with foreign investors holding a large portion of the free float in their books. Some of them bought ZSNP shares two year ago, at the time when they were near their all time high of around 800 crowns.

"They have been trying to get rid of ZSNP shares. If you want to buy a couple of hundreds thousands of these ZSNP shares, I could find sellers within minutes," a stock dealer in Bratislava said.

Over the past four years, since Slovakia scrapped the popular mass voucher privatization method, the FNM has sold off stakes directly in a number of leading companies without holding public tenders. Few details of the sales are ever revealed, and the names of the buyers rarely mean anything even to Slovak market watchers.

Slovakia has long been suffering from a low inflow of the direct foreign investments the country needs to proceed with economic restructuring. With cumulative direct foreign investment of only $1.6 billion, Slovakia lags far behind neighbouring Hungary and the Czech Republic, which have collected 18 billion and 7.2 billion respectively.

One of the most active foreign institutions investing in Slovakia is the European Bank for Reconstruction and Development (EBRD). The bank has a 10% stake in the Slovalko aluminium smelter, which is a joint-venture between the EBRD, Norway's Hydro Aluminium, with 10%, and the ZSNP with 80%.

Slovalko is the EBRD's second Slovak capital venture which has been connected with a murky direct privatisation decision made by the FNM. The EBRD itself admitted it got burned when it bought into the Slovnaft oil refinery in 1995, after having taken a 10.5% stake for which it paid face value of 1,000 crowns per share. Shortly after the EBRD's entry into Slovnaft, the FNM sold another 39% chunk in the refiner to a management-led company for just 156 crowns a share. EBRD representatives would not comment on the ZSNP privatization deal.

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