Jumping the gun
By : Wioletta Buczek
Austrian oil giant OMV said last week that it is interested in buying an 18% stake in Poland's dominant refiner, Polski Koncern Naftowy Orlen (PKN Orlen).
In a letter to the Treasury Ministry, OMV announced its intention to purchase the stake, which is scheduled to be sold to a strategic investor by November, said Treasury Minister Aldona Kamela-Sowinska. Earlier in the week OMV shareholders approved a capital increase of up to e58.16 million within the next five years for the company's expansion.
Apart from OMV, industry sources said the Treasury Ministry has also been negotiating with Austria's privatization agency, Osterreichische Industrieholding (OLAG), which holds a 35% stake in OMV.
"The ministry prefers a strategic investor for PKN to a share flotation on the Warsaw Stock Exchange (WSE)," said Tomasz Rak, an analyst with Dom Inwestycyjny BRE Banku. "The sale of PKN (Orlen) to a strategic partner would give the state an ideal 20-30% premium while in a public flotation the refiner's shares would have to be offered at a discount." On the week, PKN Orlen's shares increased 9.8% to zl. 19.65.
The sale of an 18% share of PKN Orlen is estimated to net some zl. 1.2 billion-zl. 1.8 billion ($300 million-$450 million) for the treasury, which could use the money to help offset Poland's burgeoning budget deficit. By the end of April, the deficit reached 89.7% of this year's zl. 20.5 billion ($5.1 billion) target. At the same time, privatization revenue amounted to just zl. 1.29 billion ($322.5 million), a mere 7.2% of the zl. 18 billion ($4.5 billion) scheduled for all of 2001.
Market watchers said that despite the Treasury Ministry's obvious need to generate budget revenue this year, selling the stake as early as this fall would be a mistake because PKN Orlen's share price is considered to be undervalued.
To complicate matters, two weeks ago the management board of Nafta Polska, the state agency in charge of oil-sector privatization, resigned in opposition to the Treasury Ministry's speedy privatization plans.
"I do not see the ministry's attempt to follow the privatization timetable as unwise, rather just the opposite," Rak said. "If someone sees it as unwise, he should come up with other sources of revenue."
Tomasz Stadnik, an analyst with Credit Suisse Asset Management, agreed. "I do not see any problem with the fact that the ministry wants to privatize PKN (Orlen) by autumn," he said. "I think the sooner the treasury divests of its stake the better for the company, because it is better for a company if the state does not have a strong influence on its management."
As for the walkout by Nafta Polska, Rak said he didn't know why the members resigned, "but where money is involved, politics is involved and politics means emotions leading to unexpected decisions."
Market watchers said a strategic alliance between OMV and PKN Orlen would prelude a trilateral regional alliance consisting of PKN Orlen, OMV and Hungary's oil giant MOL. In addition, a MOL-PKN Orlen alliance would be impossible since MOL has already submitted an offer for the purchase of a 75% stake in Poland's second largest refiner, Rafineria Gdanska (RG). If MOL's bid for RG is accepted, an alliance with PKN Orlen would not be permitted under the government's anti-monopoly rules.
Earlier this year, PKN Orlen President Andrzej Modrzejewski said that if MOL buys a stake in RG, PKN Orlen would be forced to ally itself with OMV.
"However, the next step will be a tie-up of the three firms," Modrzejewski said. "Due to legal differences among the potential partners, the trilateral hookup will be possible when Poland enters the European Union (EU)." He also said that such an alliance would be competitive outside the EU.
