O2 Czech Republic shares rise on reports of sale to Chinese investor

O2 Czech Republic shares rise on reports of sale to Chinese investor
Sources from PPF insist there is no done deal to sell O2 CR.
By bne IntelliNews February 15, 2016

Shares in O2 Czech Republic rose to their highest in nearly two weeks on February 15 following reports in the local media of a Chinese interest in the telecommunications company. 

A Chinese investor could buy into O2 CR, unnamed sources have told Lidove Noviny, the newspaper reported over the weekend. According to the report, the deal could be closed as early as March,  when China’s President Xi Jinping arriving to Prague on an official visit.

The name of the potential suitor for the listed Czech telecom was not reported. Closely-held Chinese corporation CEFC - speculated to be close to the country's military - bought a series of relatively small assets in the country last year, assisted by Czech-Slovak financial group J&T. It is thought the company could seal a deal to expand its holding in J&T banka to 30% during Xi's visit. 

Losing money fast with its Russian operations, Czech oligarch Petr Kellner's PPF - the majority owner of O2 CR - has been pushing hard to expand consumer-loan and banking unit Home Credit in China. Kellner has close connections to J&T, and particularly its affiliate,  energy holding EPH, whose seemingly endless pot of cash to fund acquisitions is a source of speculation. Sources from PPF insist there is no done deal to sell O2 CR.

The claim that a deal is on the way sent shares in the country’s biggest telecom operator up 2% in early trading to CZK245 (€9.1), the highest value since February 3. The stock price has surged more than 300% since O2 CR spun off its large infrastructure assets into a separate company last year.

The telecom approved in April a plan to spin off its fixed and mobile infrastructure assets into Cetin, in the first ever voluntary split of a major telecom in Europe. The plan was pushed past minorities by PPF, which bought O2 CR in early 2014.

Sources suggest to bne IntelliNews that the deal would involve PPF selling the retail part of O2 CR - in other words not including the systems management, TV services or other units - to CEFC. PPF has previously stated that O2 CR is perceived as a financial investment and as such has not ruled out a future sale, Komercni Banka points out in a note.

One dealmaker suggested to bne Intellinews last week that it could be too early for Kellner to sell. However, Xi's visit looks timed to perfection to announce that Chinese investment in the country will take a step up from the minor assets secured thus far.

Chinese investors often like the presidential seal of approval on deals, and Prague is Xi's only stop in Europe on his way to the US, according to LN. It will be the first official visit of a Chinese president to the Central European country.

“There’s a lot of formalities and politics before they can access the cash” the Prague-based M&A lawyer told bne IntelliNews.

Prague, like its central European peers, has worked hard to lure more investment from China and boost trade with the Asian giant. The launch of direct flights between Prague and Beijing in September was a step in that direction. Direct flights linking Prague and Shanghai will be launched later this year.

Efforts by the Czech government to boost economic cooperation have been pushed heavily by President Milos Zeman, who travelled to Beijing twice over the past year and a half. Zeman was lauded by Xi in September as the only "Western" leader to attend Bejing's military parade commemorating World War II. However, the president recieved a barrage of criticism at home in late 2014 when he hitched a lift home from his first visit to the Chinese capital on Kellner's private jet, with J&T also on board.