CEZ shares plunge after Czech cabinet lowers voting threshold

CEZ shares plunge after Czech cabinet lowers voting threshold
The Dukovany project is supposed to be the largest one in the history of the country, with costs projected in 2020 to be about CZK160bn (€7bn) and estimated completion in 2036, a date which critics see as already unrealistic. / bne IntelliNews
By Albin Sybera May 19, 2023

Shares of the majority-state-owned Czech energy utility CEZ dropped by 8% on May 18 after the cabinet approved a legislative change that will make it easier for the state to split the company up.

CEZ is such a dominant stock on the Prague Stock Exchange that the PX index also fell sharply, by 1.78%, to 1,316.21. CEZ shares worth CZK1.1bn were traded on May 18 and the shares closed at CZK1,041.

The Czech government is planning to build new nuclear reactors at the existing sites at Dukovany and Temelin to take the place of CEZ’s coal-burning power stations, prepare for higher electricity demand due to the development of e-mobility, and ensure the country remains self-sufficient in power.

To do so, it aims to split off at least the company's nuclear division and potentially more generating assets and nationalise them. The plans to  restructure CEZ are due to be announced this summer.

In order to ensure that CEZ shareholders will approve the plans, the cabinet has lowered the vote majority required for such key decisions to 75% from 90%.  The average attendance rate of CEZ’s general meeting is between 77-79%, so the state should be easily able to push it through with its 70% stake. Shareholders representing two third of the company's capital will be needed to reach a quorum.

The initial plan was criticised by CEZ minority shareholders and the government's own legal experts because it appeared to be specifically designed for CEZ. The new plan applies to all companies traded on a European-regulated market. It still has to be approved by parliament.

 “CEZ shares dropped after the news [emerged] of the cabinet’s legislative proposal about the transformation of trade companies,” Vladimir Vavra, a broker at Wood & Company, was quoted as saying by the Czech Press Agency.

In February, CEZ, which is co-responsible for the tender to build new reactors at Dukovany, said it is speeding up the examination of bids received from American Westinghouse, French EDF and South Korea's KHNP to build the first reactor.

CEZ made an adjusted net profit of CZK10.8bn (€457mn) in the first quarter, down 60% year on year because of extraordinary trading profits in 2022 and the imposition of a windfall tax and a revenue levy this year.

In the third quarter of 2022, CEZ registered a record net profit of CZK18.7bn (EUR0.8bn) and a net profit of CZK52.3bn (EUR2.2bn) for January-September 2022. 

CEZ is the largest energy distributor in the country, with some 2.7 million clients, and the state controls about 70% of CEZ shares through the Ministry of Finance. Some of the minority shareholders include Cypriot, American, British, or Luxembourgian companies with undisclosed ownership. 

In 2018 investigative website Hlidacipes.org pointed out that relatives or business partners of Slovak J&T and Czech-based EPH companies are linked to some of those Cypriot companies. Perhaps the most well-known minority shareholder is Michal Snobr, a J&T advisor who frequently comments on CEZ matters in the media.