Poland to open blue chip sales with stake in PGE

By bne IntelliNews July 2, 2014

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Poland has launched a bid to sell a stake of close to 3.5% in the country's biggest power utility PGE in order to finance its national infrastructure fund, according to a statement from one of the organizers of the sale. Stakes in other state-controlled blue chips are likely to follow in the second half of the year.

The 3.47% stake in PGE is worth around PLN1.42bn (€341m) based on the July 1 closing price, report newswires. The Polish state currently holds a 61.9% stake in the company, according to Reuters data. The sale was revealed by an emailed statement from Deutsche Bank, which joins several other US and European brokers in running the quick sale to institutional investors.

The proceeds will be handed to the Polskie Inwestycje Rozwojowe (PIR) infrastructure fund, which is awaiting capital to finance a $526m offshore drilling project for state-controlled refiner Lotos Group, reports Bloomberg. The Baltic Sea project was agreed in October.

PIR was announced in late 2012 as the crisis finally caught up with Poland, which had proved remarkably resilient previously. The plan was that it would stimulate growth by co-investing with private capital in large projects, powered by privatization. However, it has few irons in the fire thus far, due in no small part to the challenges of selling assets at a good price.

Poland has had to rely on its blue chips to provide regular topups throughout the crisis, as it struggled to attract investors to other privatisations. It has sold several stakes in its top companies via accelerated bookbuilding since the start of the decade, despite having other assets on its hands. That strategy has recently been made official. 

Treasury Minister Wlodzimierz Karpinski said in March that the state is ready to sell stakes to institutional investors this year in the country's top bank PKO BP and insurer PZU, as well as PGE, in order to finance PIR. Other than that, the treasury - which manages state assets - hopes to offload a PLN500m stake in soda ash producer Ciech and finally find a strategic investor for real estate holding PHN. It took several attempts to IPO a minority stake in the latter due to concern over the quality of some of the assets it holds.

Limited list

The limited list of non-blue chips likely to come to market reflects comments from officials last September. After running out of fresh companies ready to float, and struggling to meet privatisation revenue targets, Warsaw admitted it would need to rely on sales of blue-chip stakes in 2014.

Then-deputy Treasury minister Pawel Tamborski said: "Privatisation revenues in 2014 will come from the sale of share packages owned by the treasury ministry. New IPOs seem unlikely, as there are no companies which could be attractive for the market." The former banker was appointed to head the Warsaw Stock Exchange earlier this month, but is unlikely to be kept overly busy by his former boss.

Karpinski announced late last year that the 2014 target for revenue from privatization had been lowered to just PLN3.7bn (€869m). The PLN5bn target in 2013 was itself half of the figure seen in the previous couple of years, and the government struggled to hit even that. It pushed through at the last minute however, as markets rallied thanks to the US Federal Reserve's temporary delay to "tapering" of its asset purchase programme.

Included in that late push was the float of the country's fourth largest utility, Energa. However, the IPO struggled as investors worried over the busy roster of power companies on the WSE, the weak power market, and the government's push on utilities for massive investment into new capacity, as well as shale gas. 

However, analysts don't expect the same issues to weigh on demand for PGE, despite it being the top target for pressure from Warsaw for companies to invest in Polish energy security. Last year, the company dropped a PLN11.6bn plan to expand its Opole power plant, only for Prime Minister Donald Tusk to push it back into the project. It is also heading a push to build the country's first nuclear plants.

"There shouldn't be a problem with demand for stock," Bram Buring from Wood & Company told Bloomberg. "Polish power prices have decoupled from Western Europe's downward trend. Besides, the company offers fairly attractive valuation and dividend yields despite a heavy capex program." PGE shares have gained 35% this year compared with a 1.5% increase for the WSE's WIG30 blue-chip index, the newswire reports.

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