High oil prices prompt gov't to push Gdanska sale forward
The state sale of fuel operator Rafineria Gdanska will radically transform the nation's No. 2 refinery, and is timed to capitalize on a doubling in global oil prices from lows this year, analysts said last week.
The Treasury Ministry will float an as-yet unspecified stake in the refinery at its initial public offering (IPO) next year, the ministry said in late November. Analysts predicted a public sale of about 50% of shares, before selling approximately 30% of the firm to a strategic investor.
Analysts were wary of putting any value on Gdanska as the ministry had yet to release recent earnings figures for the Gdansk-based refinery. The privatization strategy is similar to that of oil giant Polski Koncern Naftowy (PKN), which after closing its subscription period two weeks ago has since been trading off-market at around zl. 22 a share. Analysts estimate PKN's 1999 earnings per share to be zl. 1.5, which gives PKN a p/e ratio of 14.7.
But Gdanska is not PKN. The oil company located along the Baltic coast has a much different profile and is a much smaller player in the domestic oil market. Moreover, a strategic investor is likely to radically transform Gdanska's core business from refining to storage, for which there is strong demand from foreign companies, analysts said.
"Many investors will be interested in a stake in Rafineria Gdanska, and then turning the refinery into storage," said Michal Mierzwa, an analyst at Centrum Operacji Kapitalowych Banku Handlowego.
As a result, Gdanska would probably reduce 75% of its staff from a current 1,600 to 400 workers, if it follows international standards, said Piotr Wozniak, an analyst at CDM Pekao Securities.
Poland's budding oil industry is dominated by de facto monopolist PKN which has about 30% of the country's retail and 50% of the refinery business tucked under its belt. In contrast, Gdanska holds a 20% share of the gas and diesel refining market, and foreign imports account for the remaining refined products market, said Monika Cebula, another analyst at Centrum Operacji Kapitalowych Banku Handlowego. In retail, Gdanska controls just 3% of the market, with around 60% controlled by independent operators with two to four stations each, and the remainder made up by foreign companies.
Recently Rafineria Gdanska has been beefing up its processing capacity to 4.5 million tons, with a final target of 7 million tons, of crude oil per year as part of an $8 million investment program, Wozniak said. By contrast, PKN is aiming for a processing capacity of 17.8 million tons by 2001. Last year, Petrochemia Plock, PKN's refinery wing, grossed zl. 14.5 billion ($4.14 billion) on sales of 11.2 million tons of processed crude oil, Cebula said. In contrast, Gdanska had sales of zl. 3.7 billion ($1.06 billion) on 3.5 million tons, she said. These figures include excise taxes.
In retailing, Gdanska has only 300 gas stations mostly situated in northern Poland and hence cut off from the center of downstream pipes that supply most of the crude to the other gas companies. Plus, it does not have a lucrative stake in the telecom sector. On the other hand, PKN holds a 19.25% stake in mobile phone operator Polkomtel (Plus GSM), which accounts for around 25% of PKN's market value, analysts said.
But Gdanska has one very strong selling point: location. On the Baltic Sea, the company is in an ideal position for shipping oil products to and from Scandinavian refineries, as well as acting as a storage point from which foreign firms can distribute their products throughout Poland, analysts said. In addition, it is not dependent on the crude that comes from Russia and former Soviet states, which make up 80% of Poland's fuel, but can import from alternative sources, such as the North Sea.
And for foreign investors, this makes the company very attractive, Mierzwa said. Currently, all storage is run by state-owned firm Naftobazy, slated for privatization next year and which PKN looks set to purchase. Naftobazy rents storage space to foreign companies. To overcome expensive storage costs, Swedish firm Preem Polska applied to build its own premises in Gdansk, but the offer was turned down, and the result is now being dealt with by the Polish and Swedish governments.
Surrounded by German and Scandinavian refineries and overwhelmed by PKN's dominance, Rafineria Gdanska's attractiveness may lie to the north, Mierzwa said. Scandinavian companies such as Denmark's Statoil, Preem and Finland's Neste will be particularly interested in the firm.
"The Scandinavians are not interested in the refinery, they're interested in the storage facilities," he said. In this respect, the firm's best option would be to obtain a partner, wind up its refining activities and go into storage and distribution, Mierzwa added.
"Everything should happen within the next 10-12 months," Wozniak said about the sale. "They would like to quickly repeat the privatization of a second Polish refinery due to the high crude-oil prices," he said.
PKN's consolidation and the increasing prowess of foreign companies means that it's now or never to sell a company that badly needs investment, Mierzwa said. "It's the last time to sell it before the competition gets stronger on the Polish market," he said.
