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Penta Group expands to new profit targets

SHAREHOLDERS in Slovak refinery Slovnaft decided at an annual meeting in late May to allocate more than a quarter of 2001 earnings towards dividends, but it took more than seven hours to reach agreement, as minority owner Penta Group with fellow corporate raiders J&T challenged economic results and successfully blocked statutory changes.
Penta Group, a collection of financial speculators operating under a Cyprus-based holding company, has quietly been building up assets and influence in key Slovak industries since acquiring Slovakia's then-largest investment fund, VÚB Kúpon in 1997.

SHAREHOLDERS in Slovak refinery Slovnaft decided at an annual meeting in late May to allocate more than a quarter of 2001 earnings towards dividends, but it took more than seven hours to reach agreement, as minority owner Penta Group with fellow corporate raiders J&T challenged economic results and successfully blocked statutory changes.

Penta Group, a collection of financial speculators operating under a Cyprus-based holding company, has quietly been building up assets and influence in key Slovak industries since acquiring Slovakia's then-largest investment fund, VÚB Kúpon in 1997.

In the past three years, Penta has gained a 15 per cent stake of Slovnaft, a 27 per cent stake with partners J&T and Istrokapitál in steel-maker VSŽ, bad-loan claims from the government worth Sk40 billion, and a 25 per cent stake in insurance giant Slovenská pois?ovoa, which will go to German insurer Allianz upon completion of their merger.

The group has never hidden their profit motive, and their company profile announces that: "We invest in assets with the intention to realise profit in return, or to profitably exit long-term investments through sale to a strategic investor.

"We identify our investment opportunities in market inefficiencies, thus pointing them out and providing the incentive to deal with them."

Penta board member Jaroslav Hašeák put the firm's strategy more bluntly in an interview last year with The Slovak Spectator: "Penta was founded in order to make money. We do everything that the law does not forbid us. And as far as ethics or morals go, these are questions that require more time and space to answer."

In May, parliament called for a Supreme Audit Office investigation into an SKo deal from last year, where Penta and partners Credit Suisse First Boston picked up a package of claims worth Sk13 billion.

While the price for the Pilot Project I package was not released, SKo confirmed that they had sold claims worth Sk14.3 billion for a total of Sk527.5 million.

Deputy László Gyurovszky from the ruling Hungarian Coalition Party (SMK) said: "One company has been buying up all of the lucrative claims and transferring them to somewhere in Cyprus."

However, while Penta's original tactics seemed to revolve around scooping up minority shares in state assets during privatisation processes and using their minority rights and the courts to force larger shareholders to buy them out, Slovakia's slowing privatisation drive has led to an apparent change in Penta's acquisition targets.

According to board member Martin Kusik, however: "We do not expect that privatisation will ever be finished in Slovakia, as long as the state still has property."

He added: "We don't think that this [change in level of privatisation] would change our attitude towards business. [Privatisation] accounts for less than half of our activities; the rest is in the private sector. We expect the share of private sector business will grow."

Kusik said that the group's short- to medium-term perspective has not changed, nor has the steady eye on quick profits.

"We are financial investors, not industrialists - we are not interested in, for example, establishing a steel industry.

"I think we are satisfied because we have a constantly increasing net asset value, which is - from our point of view as a financial investor - the most important indicator of performance in a company," he said.

Financial analyst Marek Jakoby from the Mesa 10 think tank confirmed that Penta has been more active in key businesses, but doubted that this signaled any great change in the group's approach.

"It's true that Penta is more active. They are active in VSŽ, in [ship-builder] Lodenice Komárno, in [ship-builder] Slovenské plavby a pristavy, and they are active with the claims from SKo. It's absolutely more than in previous years.

"They're financial investors, which means that whenever they buy a share, they have the goal of achieving a value and profitably selling it in the short term - maximum two or three years," said Jakoby.

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