Investors Czech out an airline and an airport

By bne IntelliNews March 23, 2009

Jiri Kominek in Prague -

The Czech government is pressing on with the privatisation of national carrier CSA Czech Airlines and Prague-Ruzyne international airport despite, or possibly because of, the current recession. Sovereign wealth funds and infrastructure funds are circling.

Ministry of Finance officials intend on opening bidders' envelopes on March 23 after inviting potential investors on February 5 to submit bids for the government's 91% stake in CSA. The two key criteria for qualifying are said to be price and an EU address for any interested party. Following this, the government will allow those who qualify access to CSA's data room to perform due diligence and will select a winning bid based on price alone by September.

The French daily La Tribune reported in February that Air France-KLM is prepared to bid €200m. Russia's Aeroflot was the first to announce its interest in CSA, however some of its shareholders appear uncomfortable with any move given the current economic climate. Furthermore, Aeroflot has acknowledged that talks have broken down with potential local partners including private equity groups Penta, J&T and PPF. Although the Ministry of Finance refuses to comment on the number of bidders for CSA, the unofficial figure is said to be 10.

CSA finished 2008 relatively unscathed from the crisis compared with other airlines, posting a pre-tax profit of CZK500m (€18.8m), up from CZK389m the previous year thanks primarily to the selling off of non-core assets, according to Petr Kovac, an analyst at Patria Corporate Finance. "It is important for the government to select a large strategic partner that will be able to integrate a medium-sized regional carrier like CSA into its global operating network," Kovac says.

Next port of call

Apart from CSA, the government also intends to proceed with the more lucrative privatisation of Prague international airport (Letiste Praha) in the hope of generating much-needed revenues prior to general elections expected in mid-2010. "We expect to select a consultant in coming weeks who will advise us on the privatisation process," Ministry of Finance spokesman Ondrej Jakob tells bne. Erste Corporate Finance, JP Morgan Chase and Credit Suisse are names that have appeared in media as the most likely candidates.

Jakob says the Ministry of Finance intends on running both privatisation projects consecutively, with a tender for the airport sale to be launched in September once a buyer is found for CSA. "There is no reason why the government will not be able to achieve both prior to the next elections; what is important is that the tender for the airport be a competitive and transparent process," says Kovac.

The Czech government successfully defeated attempts by the opposition to block the sale of the airport in parliament on March 16. Finance Minister Miroslav Kalousek said the previous day that the current recession could be a blessing in disguise for efforts to privatise the airport. "There is a lot of liquidity in the world and very few quality [investment] projects," said Kalousek.

While analysts' estimates vary from €2.5bn-3.5bn as the price that the Czech government hopes to receive for Prague airport, many of these, including the €2.8bn quoted by Credit Suisse, were issued before the full effects of the global recession swept in, and today could be overly optimistic. Apart from the global recession, the price could also be driven down because the government has failed to construct a second runway. It took a long time to settle a land ownership issue with the investment group Penta, which surreptiously bought the land where the runway would be built in 2005. The government has since settled with Penta and is now trying to ram through legislation for the new runway, despite opposition from civic groups.

A number of potential investors have expressed interest in Prague airport. These include international players such as Flughafen Wien, which operates Vienna's Schwechat international airport; German group Fraport; and Aeroports de Paris. Industry sources have told bne that a number of sovereign wealth funds (SWF) and other institutional investors located in the Persian Gulf and elsewhere in Asia are also said to be keen on the project.

One potential institutional investor to announce interest is the Anglo-American Global Infrastructure Partners (GIP), which commands an investment fund of $5.6bn. "We have extensive experience in the financial and operating sides of such investments all over the world," a GIP principal tells bne.

The company has hired Otto Jelinek, the Czech-born former Canadian finance minister and once-head of Deloitte for Central and Eastern Europe, to advise them on the Prague airport privatisation. Well-informed sources tell bne that Otto Jelinek led a GIP delegation to the Czech parliament in mid-March to meet with government officials and legislators regarding the upcoming privatisation.

GIP boasts an impressive investment portfolio across the world, including a 100% stake in London City Airport. Apart from Prague, the company is currently bidding on London's Gatwick international airport which, according to media reports, could fetch £3bn.

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