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Frustrated EBRD wants out of Slovnaft investment

Just 15 months after investing in Slovnaft, Slovakia's leading oil and gas refinery, officials at the European Bank for Reconstruction and Development (EBRD) have said they are unhappy with the treatment they have received from the state-run privatization agency, and they want to sell their shares in the company back to the government.
The London-based bank invested $59 million last August when it bought half of Slovnaft's global share issue. The 1,000 Sk pricetag per share got the EBRD a 10.5 percent stake in a company that grossed approximately $1 billion last year, and bank officials were pleased with their equity investment. As a bonus, the EBRD's purchase gave Slovnaft the cash it needed to construct a heavy petroleum residual upgrading complex at its Bratislava refinery.

Just 15 months after investing in Slovnaft, Slovakia's leading oil and gas refinery, officials at the European Bank for Reconstruction and Development (EBRD) have said they are unhappy with the treatment they have received from the state-run privatization agency, and they want to sell their shares in the company back to the government.

The London-based bank invested $59 million last August when it bought half of Slovnaft's global share issue. The 1,000 Sk pricetag per share got the EBRD a 10.5 percent stake in a company that grossed approximately $1 billion last year, and bank officials were pleased with their equity investment. As a bonus, the EBRD's purchase gave Slovnaft the cash it needed to construct a heavy petroleum residual upgrading complex at its Bratislava refinery.

But after the tepidly-received $113 million offer was settled, the state's privatization branch, called the National Property Fund (FNM), sold 39 percent of its stake in Slovnaft to the manager-only joint stock company Slovintegra for only 165 Sk a share.

"We didn't think we got much thanks for providing a rescue operation," said Jiri Huebner, director of the Czech and Slovak Republics team for the EBRD. "Clearly, 1,000 Sk was an exaggerated price, when two weeks later the FNM sold it to Slovintegra - basically Slovnaft managers - for so much less."

"That's not a free market," Huebner added. "That's a fixed market. And if Slovakia wants to be a part of the EU and a part of Western structures, it wants to play by free market rules."

The Fund has not yet issued a formal offer, but Huebner said the FNM Presidium agreed on September 20 to buy back the shares. Although a price has not been named, he added the EBRD expects to receive its full 1,000 Sk per share plus financing costs back to August 1995. Slovnaft officials declined to comment on the proposed sell-off, stating only that it "is a matter between the EBRD and the FNM."

While local experts wonder whether the cash-short privatization bureau can afford to buy Slovnaft's shares back, FNM officials shrugged off the doubts.

"The Fund is perpetual and bottomless," FNM Executive Director Ján Kato told Reuters. Kato, who is also chairman of Slovnaft's supervisory board, said that the deal will not go forward until the fund receives instructions from the Ministry of Finance. At a World Bank/IMF meeting last month, Finance Minister Sergej Kozlík told the EBRD that the bank would receive a formal offer in the near future.

In the meantime, the whole affair has left the bank, which to date has plugged $467 million into Slovakia, with a bad taste in its mouth.

"Anyone who follows the press gets a pretty good idea that foreign investors have not been welcome in Slovakia," Huebner said. "Tenders aren't going to foreign investors. Tenders aren't even going to domestic investors because these exclusive deals are made."

Kato told Reuters that the FNM is preparing a plan to open up its 25 percent stake in Slovnaft to holders of the government's privatization bonds; to date, the company is not on the published list of companies for sale.

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