Croatia plans IPO of power company HEP in Zagreb and London

By bne IntelliNews April 16, 2015

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Croatia is planning to list 25% of state-owned power utility Hrvatska Elektroprivreda (HEP) in Zagreb and London this year, raising between HRK2bn (€264mn) and HRK3bn, according to Mladen Pejnovic, head of DUUDI, the state property management agency.

Funds raised through the IPO of the country’s largest power producer will be used for investment, Pejnovic said in an interview with Bloomberg. According to local press reports, HEP is planning to invest around HRK2.7bn this year. The company also plans to purchase assets in Slovenia, Bosnia and Montenegro.

Morgan Stanley, Zagrebacka Banka and Russia’s Sberbank will advise on the planned IPO.

HEP has installed capacity of 4,000MW. The group owns 25 hydropower and eight thermal power plants. It is also a co-owner of the 250MW Plomin thermal plant together with Germany's RWE, and of the Krsko nuclear power plant, which is located in Slovenia. HEP is also active in power transmission and distribution.

In March, HEP signed an exclusivity agreement with Japan’s Marubeni on the construction and operation of the planned Plomin C thermal power plant after six months of discussions. Construction of the plant will be fully in line with EU regulations, HEP said in a March 2 statement. It is also of “strategic importance for the long-term stability and security of electricity supply in the Republic of Croatia”, the statement said.

The planned sales of state stakes in HEP and several other companies is part of the government's attempt to raise more revenues to finance the rising budget gap. Croatia was slow to recover from the international economic crisis, and the economy contracted for six consecutive years although it is expected to post modest growth in 2015. The International Monetary Fund forecast in its latest World Economic Outlook published on April 15 that Croatia would grow by 0.5% in 2015, before accelerating to 1% next year. 

Speaking to Bloomberg, Pejnovic added that the sale of state-owned bank Hrvatska Postanska Banka (HPB) could be re-launched as early as June. In December 2013, the government rejected the sole binding bid placed by Erste Bank for the 99.13% stake in HPB, saying the offered price was too low.

Croatia will also continue to look for investors in fertiliser producer Petrokemija and consider debt-for-equity swap agreements when it goes ahead with the planned sales of hotels and tourist developments.

The EC launched the excessive deficit procedure (EDP) against Croatia in January last year and recommended that the country should cut its excessive deficit from nearly 5% of GDP in 2013 to 2.7% by 2016.

Moreover, the commission said earlier this year that Croatia is experiencing excessive macroeconomic imbalances, adding that it will decide in May whether to activate the excessive imbalance procedure for the country. 

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