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HAS THE THIRD WAVE BEGUN?

Analysts look at paper mill JCP's privatization by Swedish firm AssiDomän for answers

An overwhelming majority of citizens in Slovakia took part in the world's first experiment with property distribution called "voucher privatization." Like the Czech scheme, this plan aimed to put former state-owned enterprises back into private hands. In Slovakia, the process has been tinkered with by the government, which decided to sell state-owned companies directly to domestic owners, excluding mostly foreign bids in the process.
Now that this "second wave" is almost complete, a recent case involving a newly-privatized firm's sale to a Swedish company has opened the question of whether a "third wave" of domestic owners' selloffs to foreign-owned companies has in fact begun and what the implications may be for future transactions of this type.

An overwhelming majority of citizens in Slovakia took part in the world's first experiment with property distribution called "voucher privatization." Like the Czech scheme, this plan aimed to put former state-owned enterprises back into private hands. In Slovakia, the process has been tinkered with by the government, which decided to sell state-owned companies directly to domestic owners, excluding mostly foreign bids in the process.

Now that this "second wave" is almost complete, a recent case involving a newly-privatized firm's sale to a Swedish company has opened the question of whether a "third wave" of domestic owners' selloffs to foreign-owned companies has in fact begun and what the implications may be for future transactions of this type.

The case

The case in question concerns the two-step takeover of the paper-producing company Juhoslovenské Celulózky a Papierne, a.s. (JCP), by the Swedish industrial giant AssiDomän. According to information released by AssiDomän, the company bought 60,81 percent of JCP's shares from investment funds associated with the Harvard group in February. These were shares distributed during the first wave of voucher privatization. But AssiDomän, seeking to obtain as many shares as possible, then said it wanted to buy the 30 percent stake in JCP owned by a company called KK Profin, s.r.o.

KK Profin bought the shares from the state privatization agency National Property Fund (FNM) last year for one-sixth of the market price, but will not see the return until 2001 as the shares are collateral for 1 billion Sk in investment KK Profin pledged to carry out as terms of the purchase.

Nevertheless, in March, the Slovak economic weekly Trend reported that AssiDomän owned more than 90 percent of JCP, located in the southern Slovak town of Štúrovo. Explanation: AssiDomän did not buy the shares; it bought KK Profin and its obligations to the FNM.

While on the surface it looked like a normal takeover, the mysteries and undercurrents that accompany privatization in Slovakia appeared as word got out that KK Profin was owned by a select group of individuals with close ties to JCP management. Very close, in fact. According to Slovakia's Companies Register, KK Profin's statutory representatives at the time of the sale to AssiDomän were the two sons of the JCP Director General Juraj Kučera. Asked about this development, Kučera tried to dismiss it, saying that it must "have been a prank" by his sons, and he was sure they did not participate in JCP's privatization.

The foreign investor angle

Domestic politics aside, the question on the minds of foreign investors is does the JCP takeover represent the beginning of a third wave of privatization in Slovakia, with foreign investors buying the companies from new Slovak privatizers?

The chairman of the Association of Investment Funds and Companies (AISF), Rudolf Lachkovič, does not think so. "[Domestic privatizers] love the feeling of ownership," he said. "Even when production and employment is decreasing, there's still enough for their salaries. They'll stick with the sinking ship. This way, we're going to have an economy of landlords [who are] big for this country, but small in comparison to the world."

Martin Barto, an analyst at ING Barings in Bratislava, sees it differently, arguing that domestic owners would not want to put up with foreign eyes roving over their balance sheets. "A foreign investor would look over their [the new domestic owners'] shoulders," he said. "It [the foreign investor] would not allow them to siphon away money, to rob the company blind."

According to Barto, JCP was not the first case of a concentration of ownership in Slovakia. Many companies, including such jewels of the Slovak economy as Plastika Nitra, Slovenské Lodenice or Váhostav, sold during voucher privatization, now have one owner or a small group of owners. They aren't foreign investors either, but domestic investment funds or the company's old managers. The investment funds can be expected to sell when a good offer comes, but the managers' attitude is usually different. They have a problem selling stakes, even if they keep the majority, according to Barto.

Juraj Renčko of the economic forecasting department at the Slovak Academy of Sciences, agreed with Barto, saying that "the JCP case is not the beginning, but part of an ongoing third wave" which he defined in broader terms as "the post-privatization restructuring of ownership." When asked when the third wave actually began, Renčko answered: "No one knows. The public is told only about the bigger cases. The smaller ones are harder to learn about."

One third wave that has finished in Slovakia does not concern privatized companies, but the investment funds owning them and founded from the first wave. According to Barto, nearly all smaller funds were taken-over last year by their bigger brethren and the fund ownership is now quite concentrated.

Both Barto and Lachkovič agree that a change of government would considerably speed up the domestic sell-offs to outside entities.

"Right now, [the new owners] hope they can do something about the [privatization] payments [to the FNM] on their own, and that the government will keep them afloat from budget money or otherwise," Barto said. "After the change, the first to sell would be those with minority shares, and the big guys would follow suit." Lachkovič said that if the political situation remains the same, the third wave could take up to ten years to be completed.

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