PPF's Kellner to shop in the East with new distressed fund

By bne IntelliNews February 18, 2009

Jiri Kominek in Prague -

Although the global recession spells trouble for private investors and national economies alike, for some like Petr Kellner, founder and majority shareholder of the Netherlands-based investment firm PPF Group, the downturn represents a green light to print money.

While others run for cover to lick their wounds, the Czech billionaire Kellner has decided it's high time to go shopping with a newly established private equity fund called PPF Partners, which, sources tell bne, will have a start-up capital of €1bn and could eventually more than double in size.

"We want to start with a limited circle of investors and later open the fund to outsiders," Kellner's partner Jiri Smejc informed Czech financial daily Hospodarske noviny on February 1, saying the fund would combine PPF's in-house finances with outside investor money.

Apart from these morsels of information, PPF is remaining typically tight lipped about the project. Czech media report that PPF Partners would be the result of intensified cooperation between PPF and its business partner in the insurance sector Generali, while sources close to PPF tell bne that Kellner will inject €1bn of his own money originating from the sale of his share in his personal investment firm PPF Investments. This would make sense, as it's been reported that PPF Partners will eventually replace PPF down the road as Kellner's primary investment platform.

Go east!

It's widely rumoured that Generali has already registered PPF Partners in Ukraine, which adds to speculation the fund's activities will focus on snapping up financially troubled assets in that country and other former Soviet republics hit hard by plummeting steel and commodity prices and collapsing economies. As usual, however, PPF has endeavoured to follow-up its original announcement of the fund's creation with a smokescreen of secrecy designed to baffle the business media and competition alike. "At this point, the fund has yet to be registered and, therefore, it is premature to comment on where we will focus our activities," says PPF spokesman Alexej Bechtin.

Sources close to PPF inform bne, however, that Kellner and his partners have indeed been sniffing around the CIS during the past three to four years, looking at countries such as Belarus, where Europe's "last dictator" President Alexander Lukashenko, strapped for cash, has been wooing the West recently with hints of privatising as many as 20 state enterprises, including up to four banks, in exchange for assistance from the International Monetary Fund. bne has learned that Kellner's Home Credit has been positioning its top managers for an expansion into Belarus' untapped retail banking market of 10m inhabitants. The sources also say that Kellner's lieutenants in Ukraine have been eying potential acquisitions in that country including banks and financially troubled metal mining operations hard hit by the current recession.

Sources close to PPF also say that Kellner and Generali will officially kick off PPF Partners during the second half of February, and that the new fund will become the official Kellner vehicle controlling 40% of a newly created joint venture with rival Czech-Slovak private equity firm J&T. Daniel Křetínský, a J&T partner who will personally hold 20% of the new JV, told the daily Hospodarske noviny in an interview in February that the venture is looking to compete with the giant Czech utility CEZ in the generation and distribution of heat and electricity from hydrocarbon and alternative sources.

PPF and J&T confirmed the creation of the new holding on February 16, saying it would focus on over 20 companies previously held by the former in the energy and manufacturing sectors, and would include companies such as utilities Prazska energetika and Plzenska energetika, as well as bus maker SOR Libchavy, which recently secured a CZK3.5bn (€120m) contract to supply Prague with a record 650 buses. Jiri Smejc told local media the new holding is looking at investment opportunities beyond the Czech Republic and Slovakia, in countries like Russia and those in the rest of the CIS.

Apart from PPF Partners, Kellner is rumoured to be interested in buying the financially troubled Netherlands-based property developer ECM Group, whose subsidiary ECM Real Estate Investments recently was granted permission by Prague land planning officials to construct two high-rise buildings (one hotel, the other a luxury residence) next to the company's flagship project, the City Epoque Pankrac commercial office tower in Prague 4. ECM officials have confirmed that the developer has co-operated with PPF on a project in Beijing and talks are underway about several projects in Russia.

"The question is whether [ECM Group head] Milan Janku, despite the current difficult economic climate, will want to sell to PPF, or whether he will wait for things to get better," says Petr Hlinomoraz, analyst at BH Securities.

Kellner's PPF Advisory has also agreed to finance a consortium of companies bidding for a CZK120bn environmental waste disposal tender issued by the Czech government, representing the largest public tender ever issued by the country.

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PPF's Kellner to shop in the East with new distressed fund

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