Bigger PKN sale could hurt Gdanska
The Treasury Ministry's plan to sell off another 30% of Polski Koncern Naftowy (PKN) in a secondary offering next year could hurt the privatization of Rafineria Gdanska, analysts said last week.
The giant fuel sector sale of Gdanska is scheduled for the second half of 2000. But with the far larger PKN now set to hit the market with shares at about the same time, Gdanska's initial public offering (IPO) will be a far harder sell, according to analysts and investment banks involved with the deals.
"I am astonished that (Treasury Minister Emil Wasacz) will sell PKN before privatizing (Rafineria Gdanska)," said one source involved with PKN's future offering. "If (investors) spend their money on PKN, they won't on Rafineria Gdanska."
The Treasury Ministry's decision came in early December, upping the PKN stake on offer from a planned 15% to 30%. The reason was the huge demand for shares seen in the PKN IPO, in which the individual investor tranche was 10 times oversubscribed. "The treasury believes that it is possible to sell more shares for an even higher price," said Michal Mierzwa, an analyst at Centrum Operacji Kapitalowych Banku Handlowego.
While PKN's subscription price was zl. 19.5 per share, the stock is now trading at around zl. 24. Analysts estimate PKN's 1999 earnings per share (eps) at zl. 1.5, giving the stock a price-to-earnings ratio (p/e) of 16. They said the sell-off was also timed to benefit from world oil price highs that have seen the sector's value rocket from lows earlier this year.
Some analysts warned, however, that hurting Gdanska's IPO isn't the only danger from floating a larger portion of PKN. They said that with 30% on offer, 75% of the company will be in private hands leading to the possibility of a takeover by a strategic investor.
In the event a strategic investor buys more than 51%, the Treasury Ministry's 25% "golden share" prevents the investor from making important decisions about PKN's core business without its approval. However, an investor could acquire a strategic position in PKN by buying up several small stakes, which would be "a quicker and better way to make an influence on the company," the source close to PKN said. The source added that the government had so far not secured itself in the event of this happening, and if an investor achieves this, interest in Rafineria Gdanska would be even less.
It is not yet known how much of Gdanska will be sold in its IPO, but analysts said that 45-50% of the company would be publicly traded, including a 15% employee share tranche. After the sale, they expect a further 30% to be sold to a strategic investor. Analysts are wary of putting a value on the company with recent earnings figures not yet available. However, as a refinery, the firm grossed zl. 3.7 billion ($1.06 billion) last year on sales of 3.5 million tons of processed crude oil, in contrast to Petrochemia Plock, PKN's refinery wing, which grossed zl. 14.5 billion ($4.14 billion) on 11.2 million tons.
The sell-off is part of a privatization bonanza next year in which zl. 20 billion ($4.76 billion) is scheduled to hit state coffers. PKN's second public offering at its current share price would bring in zl. 3.02 billion ($719.05 million) alone, and analysts view the prospect of both companies going public as positive for capital markets here.
But the sale of two heavyweights from the same industry at the same time is unprecedented, analysts said.
"There's never been such a situation where two large companies from the same sector have been privatized," Mierzwa said. "But Rafineria Gdanska is a worse company, and it's their last chance to do it" with the increasing dominance of PKN and the prominence of foreign companies.
Gdanska's current refining capacity is four times lower than PKN's at 4.5 million tons of crude oil per year, and the company has an enormous amount of restructuring to accomplish, analysts said. Layoffs of up to 75% of the company's 1,600-strong work force may also prove difficult for the government. About half of Gdanska's workers are members of the Solidarity trade union, which is the base of the governing Solidarity Election Action (AWS) party.
Potential investors are also unlikely to be interested in keeping Gdanska in its current mode of operation. Rather, they will likely look at it as a storage facility for foreign firms to distribute their products throughout the country, Mierzwa said. Currently, Gdanska has a 20% share of the gas and diesel refining market and 3% of retailing, in contrast to PKN's respective 50% and 30%. As a result, a large investor would likely shutter these operations at Gdanska, he said.
