KGHM looks to board shake-up

We may also expect potential management changes at the company."
By : Jeffrey Sparshott

   Officials at copper and telecoms giant KGHM Polska MiedŸ expect the Democratic Left Alliance (SLD) to shake up the company’s management by appointing supervisory board members that are on good terms with the new government and in agreement with its economic development philosophy.

   “From what we hear it is likely that the management board will be replaced by the new government,” said Wojciech Marciniak, investor relations director at the Lubin-based company.

   KGHM, whose management is already under intense union pressure, is one of dozens of companies where the treasury makes key appointments to supervisory boards. Among publicly listed firms, KGHM and oil refiner and marketer Polski Koncern Naftowy Orlen (PKN Orlen) are the biggest and most heavily traded, with a strong segment of foreign shareholders.

   “We may also expect potential management changes at the company,” said a SG Securities company report on PKN Orlen. The company’s management has allegedly meddled in politics on the side of the outgoing Solidarity Election Action (AWS) leaders and SLD’s electoral victory could be bad news for management, the report said.

   Treasury minister-designate Wiesław Kaczmarek last week told the Business Journal he would not comment on potential management changes at state-controlled companies until after the party formally presents its program to the Sejm. But in an August interview he said: “The last four years have proven that many managers appointed by the government were glaringly incompetent.”

   The Treasury Ministry holds about 44% of KGHM’s shares and appoints five of the company’s nine supervisory board members; the supervisory board appoints management. The situation is similar at PKN Orlen, though with direct and indirect control of 28% of the company’s shares, the treasury has less influence but still enough to implement supervisory changes.

   “Of course, the management is very important for investors and analysts,” said an official from the Płock-based company’s investor relations department. “They judge not only the financial performance but also the management, their experience and actions and decisions they make.”

   But according to analysts, management changes are not unexpected and the reaction would be muted.

   “This is a common risk for state-owned companies,” said Rafał Jankowski, an analyst with CDM Pekao Securities. “Every investor interested in this company should know about it and count on an additional risk factor … a political risk factor.”

   Beyond management changes, a new overall strategy for state-owned companies and new ideas concerning the privatization process would have an even greater influence on such firms.

   “I think investors are more or less used to changes in supervisory boards and changes in government – it is not positive but I don’t expect a major negative reaction (from investors),” said Tomasz Bardziłowski, Poland country analyst for Credit Suisse First Boston. “It would be the change in privatization policy that would be crucial. For this we should still wait and see what the new Treasury Ministry will propose.”

   The change in government – a new Cabinet could be official when the Sejm meets Oct. 19 – catches PKN Orlen and the treasury in mid-stride with an attempt to sell a 17% government-controlled stake to Hungarian oil conglomerate MOL. And KGHM is involved in internal restructuring and is considering how and when to sell a 10% chunk of publicly owned shares. But any new corporate managers would have to live within the overall policy guidelines set by SLD.

   “A change of government may have an effect on whether, to whom on what conditions the stake will be sold,” said the PKN Orlen official, who asked not to be named.

   Kaczmarek has publicly floated several ideas for restructuring state-controlled assets. In a radio interview last week, he named energy, defense and steel sectors as priorities. But Kaczmarek and the rest of the cabinet were only named to their posts last week, and there is still no official privatization plan.

   Along with Kaczmarek, Prime Minister Leszek Miller last week designated the Cabinet for his coalition government.

   As the new government decides its company strategy, analysts are waiting for the first signals on policy.

   “I would just love to see the strategy in the industry coming from the new government regarding privatizations, and how they will complete tenders (in the sector),” said Bidzina Bejuashvili, senior oil and gas analyst for Central and Eastern Europe at Raiffeisen Zentralbank (RZB).

   Any decisions could have a long-term impact on PKN Orlen’s core retail and wholesale businesses, he said.

   Some possibilities for the two companies include PKN Orlen taking a leading role in chemical sector restructuring and teaming KGHM up with a nearby soft coal mining and heat and power firms in Turów.

   Analysts see some of the proposals as suspect but think Kaczmarek’s overall direction could be good for Poland.

   “Generally I agree with the new ministers that the privatization process shouldn’t be seen as only a fiscal process that provides financing for the state budget,” he said. “And I agree with Mr. Kaczmarek that we have to create big and efficient entities by restructuring.