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EBRD-Slovnaft: the honeymoon is over

Talk about a possible change of heart. The European Bank for Reconstruction and Development (EBRD), which just three months ago bought $59 million worth of shares in Slovnaft, has sharply criticized the company and the National Property Fund (FNM) for selling 39 percent of its shares to 19 Slovnaft top managers. The EBRD and Slovnaft - the largest oil and gas conglomerate in the country - have a long history of being partners. In 1994, the bank underwrote Slovnaft's purchase of new gas stations. Then, this summer, the EBRD bought 10.5 percent of Slovnaft's stock through a heavily-advertised company global share offer.


"If we knew about the conditions of the sale to the managers of Slovnaft, we would probably not have undertaken this investment."

Jiři Hübner, EBRD representative


Talk about a possible change of heart. The European Bank for Reconstruction and Development (EBRD), which just three months ago bought $59 million worth of shares in Slovnaft, has sharply criticized the company and the National Property Fund (FNM) for selling 39 percent of its shares to 19 Slovnaft top managers.

The EBRD and Slovnaft - the largest oil and gas conglomerate in the country - have a long history of being partners.

In 1994, the bank underwrote Slovnaft's purchase of new gas stations. Then, this summer, the EBRD bought 10.5 percent of Slovnaft's stock through a heavily-advertised company global share offer. It was not until after the $112 million offer was complete that the FNM decided to sell part of Slovnaft to Slovintegra, a holding company formed by Slovnaft executives.

The EBRD was disappointed, to say the least. Back in August, Jiři Hübner, the Czech and Slovak Republic team manager for the bank, pointed out that part of the reasoning behind its participation in the share deal was that the move diluted the government's stake in the company to 64 percent. "We would like to expand our support" for the company, he said at the time. But this month, Hübner was singing a different tune. He told the Slovak press that the shares Slovintegra bought were sold without a competitive tender, at a price below market value.

"There was no mention of this step in the issuer's prospectus," he said. "If we knew about the conditions of the sale to the managers of Slovnaft, we would probably not have undertaken this investment." Slovnaft insists that the bank has nothing to worry about. "Really, there is no need for concern," said Jolana Petrášová, vice president for economics at Slovnaft. She added that the real decision maker is the FNM, and that the institution and the bank are currently discussing the issue.

The Slovak press has been reporting that the EBRD wants to sell its shares back to the FNM. And while Michael Micko, principal banker for the EBRD, would neither confirm nor deny the news, he did say that the bank is in an on-going dialogue with the FNM, and that it has put forward five different alternatives for the Slovak government to choose from. He would not discuss any further details.

"The discussion has been going on for a number of weeks now," Micko said. "We're making progress, and we hope it will be worked out to a reasonable solution."

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