Telekom Srbija privatisation collapses

Telekom Srbija privatisation collapses
By Ivana Jovanovic in Belgrade December 12, 2015

Serbia’s government has abandoned the sale of its 58.11% stake in telecoms incumbent Telekom Srbija as the best price offered - by an unnamed US investment fund - was unsatisfactory, Serbian prime minister Aleksandar Vucic told a press conference on the evening of December 11.

By scrapping its second attempt to privatise the telco, Serbia is declining at least €1bn of foreign direct investment which Belgrade had hoped would significantly contribute to the country’s economic growth in 2016, when GDP is expected to rise by 1.8%. However, selling one of Serbia’s largest and most profitable state-owned companies at a price below public expectations would not have been politically acceptable given the strong opposition to Vucic’s privatisation programme.

The government had postponed its decision several times over the last few days, as it struggled to decide between accepting the offer or scrapping the sale. Ministers were  unsure if they could find a way to improve the company’s operations without a strategic investor, the prime minister told journalists at a press conference on the morning of December 11 after the government’s first meeting on the subject.

However, after a second meeting later in the day, Vucic said he hopes Telekom will improve its performance over the next four years, which would allow the government to put it back on the market and achieve a better price. Since it will not be privatised, the company will be restructured to improve its competitiveness.

According to the prime minister, the best offer among the six final bids, and the only one to factor in the government’s final decision, was from an US investment fund. He added that the price offered was slightly below that expected by the government, and lower than the price Telekom will strive to achieve by 2019.

According to earlier media reports, two US investment funds were interested in the acquisition of Telekom Srbija - Colbeck Capital Management, and Apollo in partnership with Telekom Slovenije, the Slovenian incumbent whose privatisation also failed earlier this year.

MTS was also reportedly interested, leading to speculation the Russian company could win the tender for political reasons, given Serbia’s dependence on Russian gas imports. However, in November Serbia's minister of trade, tourism and telecommunications Rasim Ljajic stressed that the decision would be based on the price offered, telling journalists that “if Eskimos come and offer good price, they will get the telco”.

There was speculation that the government was hoping for at least €1.4bn plus an additional €100mn for social programnes and €50mn to cover the company’s bad debts. Local media reported that Colbeck Capital Management has offered €1.47bn and that Apollo’s first offer was €1.2bn.

On Friday evening Vucic said that the price offered by the fund was at least six times Telekom’s earnings before interest, taxes, depreciation and amortisation (EBITDA), compared to the 4.8 times EBITDA offered by Telekom Austria for 51% of the company in 2011 and turned down by the government.

Telekom Srbija's EBITDA in the first half of 2015 increased by 5.7% compared to the same period of 2014 to reach RSD16bn (€133mn).

Speaking on Friday morning, Vucic underlined he was not happy with the decision to abandon the privatisation, given the difficulties Telekom will face in the increasingly competitive global telecoms market. He added that “everything would have been much easier” for the government if an extra €100mn had been offered.

Vucic added that the decision of the government and of the commission for the privatisation of Telekom Srbija was unanimous, and took into account advice from privatisation adviser Lazard Freres.

The main problem faced by Telekom Srbija is its huge payroll. Within Serbia, the company has become a byword for nepotism, where almost all workers have connections either to other employees or to government officials. As a result, Telekom Srbija has some 9,000 workers in Serbia, and around 13,000 if its subsidiaries in Bosnia and Herzegovina and Montenegro are taken into account.

The two trade unions representing Telekom Srbija workers had lobbied hard against the privatisation, though they acknowledged that around 1,500 workers were not needed at the company. They claimed it would be easy to manage lay-offs within the next three years, preferably through voluntary programmes.

The Serbian government is Telekom Srbija’s single largest shareholder, with a 58.11% stake, with the company owning 20% and the rest belonging to small shareholders and to current and former employees.

Vucic announced on December 11 that in the upcoming period stakes belonging to small shareholders could be sold as they were an obstacle to the government’s attempt to sell the company.