Nicholas Watson in Prague -

In the wake of talks to sell a stake in its consumer finance subsidiary to Russian bank VTB and the acquisition of Russian agricultural firm Rav Agro-pro, Czech billionaire Petr Kellner's PPF Group is preparing another transaction with a Russian flavour - that of buying Slovak Gas Holding with a view, say analysts, to possibly doing a subsequent deal with Gazprom.

Sources have confirmed to bne reports that have been doing the rounds for several months that Energeticky a prumyslovy holding (EPH), an energy joint venture in which PPF holds 40% along with J&T Group (40%) and Czech national Daniel Kretinsky (20%), is looking to buy out the two shareholders of Slovak Gas Holding - E.On Ruhrgas and Gaz de France (49%). Slovak Gas Holding has a 49% stake and managerial control of the Slovak gas monopoly Slovensky plynarensky priemysel (SPP), with the Slovak National Property Fund holding the other 51% of SPP.

A report from Czech Position on August 9 said the deal could be worth around €2.5bn, with EPH hiring Morgan Stanley and JP Morgan to advise on the deal and help raise €1.75bn to finance it. E.On and GDF bought the 49% stake in SPP in 2002 for 123bn Slovak crowns, then worth around €4bn.

This potential loss is illustrative that it hasn't been an entirely happy investment for the two foreign utilities. SPP has continually been at odds with Slovakia's utility regulator URSO over not being allowed to increase prices sufficiently to cover its costs in the household gas segment; on August 5, the daily Pravda reported that SPP has filed 15 suits against URSO for rejecting its requested tariff for the period from November 2010 and May 2011, claiming this cost it €70m in the household segment last year, with similar losses in the segment expected this year too.

SPP is the incumbent gas distributor, but has gradually been losing its dominant share of the local market to about 75% since the liberalisation of the gas industry and the arrival of competitors Germany's RWE and Gazprom-controlled Vemex. The antipathy between GDF and E.On and the previous left-leaning Slovak government was so great that in 2009 the then PM Robert Fico stated his wish to see a Slovak-Gazprom joint enterprise created that would compete against SPP, declaring that the SPP privatisation had turned Slovakia into a "vassal."

The question is why Kellner's PPF would want to buy a company that is losing market share and profits, and in danger of being further discriminated against if Fico, as most polls predict, returns as prime minister at the next election.

As is often the case with the secretive Kellner and his investment group, the answer isn't immediately obvious.

Some experts argue that while buying SPP might not be such a good fit for PPF, it would help Gazprom, which lost its monopoly of supplying gas to Slovakia in 2009 after SPP began buying gas from GDF, E.On and Verbundnetz Gas as part of efforts to reduce the country's almost total dependence on Russia for its gas supplies. "I think PPF buying SPP may not be such a good idea if Fico wins next elections. It may make a lot of sense for Gazprom - their strategy is to get close to final consumers," says Jan Ondrich, an energy analyst with Prague-based advisory firm Candole Partners.

Thus PPF may be looking to strike some subsequent deal with Gazprom if it buys SPP - something that would fit in with the group's broader strategy to invest in and with Russian concerns.

However, Jakub Groszkowski of the Warsaw-based Centre for Eastern studies (OSW) regards the deal as a simple case of EPH trying to realise its ambition of becoming a major player in Central Europe's energy market, which SPP, despite its problems, would help further. "Kellner has been very successful in Russia, but in the financial sector and lately in agriculture, but not in energy," says Groszkowski. "I can't see any evidence that supports this speculation [about a Russian connection] and the EPH partners have to be careful, SPP is a very politically sensitive company."

Motherland

PPF has certainly been active in Russia recently. On July 27, PPF confirmed that it had completed the purchase of a majority stake in the Russian agricultural firm Rav Agro-pro for an undisclosed price.

Rav Agro-pro controls 164,000 hectares of Russian arable land, cultivating wheat, barley, sunflower, sugar beet and potatoes in the Voronezh region with an annual capacity for 80,000 tonnes, as well as owning a pig farm with 3,700 heads and a large dairy and cattle farm. PPF said in a statement it's looking to raise the efficiency of the Russian agricultural holding through the transfer of international management know-how and technology.

"Agriculture is a traditional sector of the Russian economy and its development plays an important role in raising the living standards of the population there. This investment is further confirmation of PPF's position as one of the prominent foreign investors in Russia's real economy," PPF said.

bne has also revealed that PPF has been in talks for almost a year with Russian bank VTB about doing some kind of deal over PPF's Home Credit BV consumer finance company that operates in Russia, Belarus and Kazakhstan. As part of wider consolidation trend in the Russian banking sector, VTB is looking to beef up its consumer finance operations and Home Credit & Finance Bank in Russia presents an attractive proposition, being the leading provider of consumer loans at points of sale with a 27.3% share of the market, and the sixth largest provider of credit card loans.

However, rather than sell the whole division to VTB as originally envisaged, the latest news that has emerged over the summer is that PPF is looking to float a roughly 25% stake in an international IPO, and then sell a smaller stake of around 10% to VTB.