MVM and Mol launch joint bid for Slovenske Elektrarne

By bne IntelliNews November 20, 2014

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Hungary's MVM and Mol have submitted a joint bid for Slovak power utility Slovenske Elektrarne (SE), they announced on November 20. The news is unlikely to be welcome in Brussels.

The deadline for non-binding bids for the 66% stake in SE held by Italy's Enel was November 19. Reports earlier in the month suggested the two Hungarian companies were considering entering the fray.

Mol - 24% state-owned - is bidding via Slovak oil refining unit Slovnaft, a joint statement from the Hungarian companies said. Mol said the bid is in line with Slovnaft’s long-term strategy to strengthen its position on the energy market by diversifying its gas and oil portfolio. 

State-owned MVM is being transformed into a Hungarian "national champion" by Prime Minister Viktor Orban. It has absorbed several Hungarian utility assets over the past 18 months as Budapest has pushed international companies out of its gas business, including the main importer from Russia. It now says it aims to expand its portfolio in the Central and Eastern European region.


The EU and US are unlikely to smile on the bid for Slovakia's dominant power producer, which operates the country's two nuclear plants. MVM's reported interest in SE had already sparked a claim from - a news portal critical of Orban - that the European Commission suspects it of fronting for Russia.

The Hungarian PM is under huge pressure over his lean towards Moscow, particularly when it comes to energy. The idea of a state "national champion" is based on the Russian model that built the likes of Gazprom. Orban said in the summer he wants to build an "illiberal" democracy in Hungary, with Russia and China as models.

In January, Hungary surprised observers by scrapping an international tender on the planned expansion of the Paks nuclear plant, handing the contract instead to Russia's state nuclear agency Rosatom. Moscow will lend €10bn in funding for the project, which is operated by MVM. 

In the summer, Rosatom was seen as a leading contender to acquire Enel’s stake in SE by Slovak media. Just ahead of the Italian company's announcement in June of its planned divestment, Enel received an unusually large loan from Russian state-controlled Sberbank. The credit almost exactly matches the €800mn extra in funding for the troublesome expansion of the Mochovce nuclear plant that Enel is trying to push past the Slovak state, which holds the remaining 34% in SE.

Adding to the impetus for a bid from the east is Mochovce's use of Russian technology and fuel. CEZ chief executive Daniel Benes - the Czech utility is seen as a leading contender for the SE stake - suggested as late as October it would be better if Rosatom at least took Mochovce on. However, the deterioration of relations between Russia and the West means direct Russian ownership of an EU nuclear plant is now unthinkable. 

Regional alternative

Mol’s interest may also have Russian connections, via Croatia. The company has been fighting with fellow shareholder Zagreb for years over management of oil and gas firm INA. Both have regularly threatened to sell, but with Russian giants Rosneft and Gazprom the only likely suitors, the US has now stepped in with an offer to "mediate".

The Hungarian company's CFO reiterated on November 19 that it would be happy to sell its 49.1% stake should it fail to get confirmation from Zagreb that its management rights in INA - which Croatia says were acquired illegally - will remain. Given Zagreb's challenge, interest in Mol's minority stake has been low. However, the same day, reports said Swiss-based industrial company Klesch Group is now doing due diligence.

With poor growth prospects in its home market, MOL may be hoping to replace its nightmares in Croatia with a focus on alternatives in the region; albeit, SE is unlikely to offer the same level of growth opportunity as INA's hydrocarbon exploration rights. The Hungarian company - like Slovnaft - also has little experience in the power markets.

Added leverage

In contrast to the EU, Enel will be delighted to have the Hungarian bid arrive. The Italian company announced on November 19 that it has received three non-binding bids. CEZ said the same day that it has sent a letter to Enel to express its interest.

Enel announced the sale of SE as part of a divestment plan that also including assets in Romania and Spain. It hopes to raise €4.4bn in order to lower its debt burden. Ratings agencies have threatened a downgrade for the Italian company unless it restructures its liabilities by the end of the year.

That pressure, on top of the vicious fight with Bratislava over Mochovce, has seen suitors - most notably CEZ, which was chomping at the bit in June - furiously downplaying their interest. While its coffers are empty, the Slovak government has also said it wants to use its preemptive rights to increase its holding if possible.

That's likely another red flag for investors. However, it shouldn't put off Czech-based energy holding Energeticky a Prumyslovy Holding (EPH), which is controlled by closely-held Slovak financial group J&T and reputedly close to  Prime Minister Robert Fico. The company bought 49% and management control of Slovakia's gas pipelines from Western utilities last year, proving it can work alongside the government which holds a majority stake.

At the same time, Enel now looks to have a balance to attempts to push it lower on the pricing of SE. Reports on November 19 said it is on track to raise at least €3.2bn from the sale of shares in Spain's Endesa. Enel officials have been busy asserting that the Slovak and Romanian assets could yet be kept if it can meet its debt reduction targets by other means.

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