Poland’s PKP Cargo reports "irregularities" in acquisition of Czech peer AWT

By bne IntelliNews July 5, 2016

PKP Cargo has found irregularities concerning the valuation of AWT, the Czech peer it took over last year, the Polish rail freight company announced.

The new management board at Europe's second largest freigh carrier launched an audit into the acquisition after coal miner OKD - a major customer of AWT - filed for bankruptcy earlier this year. The probe reportedly found that the value of AWT, for which PKP Cargo paid over €100mn, was overestimated.

“Deviations from the methodology of estimation of the enterprise value and mistakes in the assumptions for the valuation [as well as] in the valuation technique,” could have inflated the deal price, PKP Cargo said late on July 4.

On the one hand, the announcement appears to be part of a wider push to discredit the former government's privatisation drive. The PiS government has said it will halt all state asset sales. A 67% stake in PKP Cargo was sold via twin privatisation deals in 2013-2015.

At the same time, the bankruptcy of OKD has clearly been on the cards for some time. The Czech miner provided 30% of AWT’s revenue. The problematic deal could also threaten PKP Cargo's hopes of bulking up further.

At the same time, the EBRD has heralded the acquisition as it lent the Polish company €100mn to refinance the deal. The international institution called the purchase a possible “milestone,” suggesting it would support “the implementation of the post-privatisation corporate strategy and will also allow [PKP Cargo] to obtain a more diversified portfolio, less dependent on bulk transport within Poland".

PKP Cargo acquired AWT looking to expand beyond Poland. With plans to cooperate with Croatian company HZ Cargo, the Polish rail freight specialist has said it hopes to offer services along the north-south rail link between the Baltic and the Adriatic seas, a project that has EU backing.

Despite the problems with the acquisition – which hit the company’s first quarter results - PKP Cargo has claimed it is working to disengage AWT from relying on coal transport by making inroads into the automotive market, for example. AWT’s usefulness for PKP Cargo’s expansion plans remains valid, the company also said.

Part of a widescale changing of the guard at Polish state-controlled companies since PiS took office in November, the former management of the rail company resigned in December. The new board was appointed in March. The state controls the freight carrier via the 33% stake it retains, which is held by national rail operator PKP Group.

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