Czech PPF limits divestment of EPH stake

By bne IntelliNews March 26, 2014

bne -

Czech investment group PPF has reportedly sold only a minor stake in Energeticky a prumyslovy Holding (EPH) to its partners, meaning a planned deal for a major shift in ownership in the strategic Central European energy group is now off the cards.

Owned by the Czech Republic's richest oligarch, Petr Kellner, PPF has sold a 4.4% stake in M&A-hungry EPH to Slovak financial group J&T and EPH CEO Daniel Kretinsky, according to press reports. That sees PPF's stake reduced to 40%, with J&T holding a similar interest and Kretinsky lifting his holding to 20%.

Late last year it was reported that PPF - which in November paid €2.47bn to buy major Czech mobile operator Telefonica CR - had agreed to sell its full stake to the partners. Kellner's group is also said to be interested in buying Bratislava's stake in Slovak Telekom, and on March 14 announced it has agreed to sell a stake in Russian electronics retailer Eldorado to Czech vehicle Emma Group, owned by a longtime partner of Kellner's.

However, Czech daily Lidove Noviny claims that the 4.4% divestment has now replaced that proposed deal, and that PPF will now maintain the status quo in the shareholder structure of EPH. A spokesman for the energy holding refused to discuss the deal with Slovak news wire Sita, saying only: "We cannot speak for PPF."

Cut line

That may indicate that majority owner Deutsche Telekom (DT) opposes the entry of a strategic investor - or at least PPF, which now owns a major rival in the Czech Republic - to Slovak Telecom.

Bratislava said in mid-March that it is ready to sell its 49% stake in the telecom. DT has long refused to buy the stake, happy with its controlling interest. The Slovak state said that it will need the support of the majority owner on any divestment plan. It said in February that it will likely now sell the the stake via IPO.

The German giant bought out the remaining 40% of shares in T-Mobile Czech Republic in February as it sought to leverage its November purchase of regional fibre optic fixed-line and infrastructure business GTS Central Europe. With recent efforts to introduce a competitor to the three major operators (Telefonica CR, T-Mobile, and Vodafone) the Czech market is seen as ripe to exploit those synergies.

However, DT has baulked at buying up full control in less stable markets such as Hungary, where the state is pushing to launch its own operator to compete with the three foreign-owner players. On March 6, DT reported that the EU has expanded an antitrust investigation against Slovak Telkom regarding claims that it has abused its market dominance.

Status quo

That appears to leave PPF a major player in the Central European region's energy sector, which may be a blessing given EPH's growing exposure to Russian energy flows and Kellner's strong connections with a major group of oligarchs based in St Petersburg.

EPH has pushed its way into a strategic position over the last few years via a ravenous appetite for acquisitions, which has seen it build a portfolio of more than 30 entities active in all major parts of the energy chain (eg. mining, heat and electricity generation, and commodities trading). Along the way, it has often been accused of colluding with state-controlled CEZ to carve up the Czech power market. It is now also the third largest heat supplier in the country, and holds a similar position in the German coal mining industry.

In early 2013, however, it took a step up to became a key player in the geopolitical playground of Russian gas sales to Europe, buying into Slovak pipeline operator SPP. The €2.6bn purchase from E.ON Ruhrgas and GDF Suez handed the company 49% and management control of the Slovak section of the pipeline that carries Russian gas imports into the EU via Ukraine.

There was a mini-scandal in Bratislava in September when it was announced that the Slovak government, which holds 51% in SPP, would buy EPH out of the gas importing part of the business - which runs at a loss due to heavy regulation on domestic gas prices. The opposition noted the good relations between the ruling Smer party and J&T.

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