Kostkiewicz:
By : Jeffrey Sparshott
Zygmunt Kostkiewicz became president of Poland's largest insurance group, Powszechny Zaklad Ubezpieczen (PZU), after almost one and a half years of wrangling between the government and the company's strategic investor, Netherlands-based Eureko. As the two sides fought and then negotiated for control of the company, PZU managed to maintain its dominant position on the Polish insurance market. The Treasury Ministry and Eureko worked out their differences in April and installed Kostkiewicz as head of the company. Now the PZU group faces a decisive moment in its development, with Eureko and its partner Big Bank Gdanski (Big BG) set to take a majority stake in the firm during an upcoming initial public offering (IPO), scheduled for later this year or early next year. Kostkiewicz last week talked with the Warsaw Business Journal's Jeffrey Sparshott about the plans and challenges for the company as it completes the transition from a state monopoly to a competitor in Europe's insurance market. The following is an edited version of their conversation.
Q: What is the most realistic scenario for the Treasury Ministry to sell its stake in PZU and the Eureko consortium to become the majority shareholder?
A: I would like to confirm two things. First is that both sides, the consortium and the treasury, agreed to make all possible efforts to privatize 50% of PZU this year. It's a very tough issue, but it's possible. So it's difficult to say clearly when PZU will be privatized, this year or next year.
Q: How much money do you expect to raise from the IPO?
A: If I had any idea I couldn't tell you because of limits on information imposed by advisors of the state. Before an evaluation of the company, it is extremely risky from my side to tell it, even privately.
Q: Will the stock be floated in Warsaw or London?
A: The first idea, which is still ongoing, is to do it parallel in Warsaw and in London. But before the publication of the Treasury Ministry's report, it's tough to predict if the first opinion about selling PZU will be fulfilled. If the treasury is really concerned about timing they can decide to do it only in Warsaw because it's easier. If price is the main concern, I think we should do it in both markets with some risk of potential delays. Of course, it's the treasury decision.
Q: Can you tell me about your meeting with foreign investors in London this week?
A: It isn't really to visit with investors. It isn't the road show for the future IPO, which will take place in September and October if this year's privatization date is to be fulfilled. It's simply some participation in the road show of the Warsaw Stock Exchange, which has a goal to increase foreign investors' interest in Polish paper. Of course, with such a big IPO like PZU's, we would like to be marketed during a road show like this. It will consist of some very general presentations on the company, which is important because PZU is not well known to Western investors. But the visit is the pre-marketing of our IPO.
Q: PZU group has just emerged from a rather lengthy dispute, first between its strategic investors and the government, then within the group's management. What has been the cost of these problems financially, in terms of market share and for Polish consumers?
A: It is very strange because market share increased during the dispute. What we really lost was the opportunity for change. So it decreased the value of the company for a short period. It is very difficult to appreciate monetarily the cost of this delay. But, of course, such costs do exist.
Q: How will September's elections and a probable change of government affect your job and PZU's privatization?
A: I like to think of PZU as a company without a big political agenda. It doesn't take sides. I don't do any politics in my management. I hope (any) new government sees it this way. If privatization is advanced by then, there may be a moment in the final stages when a signature by the new treasury minister will be necessary. But the impact (of the elections) for the company management will not be such a big deal. I hope the impact of the September elections will not be a really big one for PZU.
Q: What are the company's plans for regional expansion which countries will you enter and when?
A: We would like to be in all our neighboring countries. The most advanced plans are for Lithuania and maybe we will have something to communicate to the public very soon. The next issue that is extremely interesting to us is the privatization of Slovenska Poistovna, the Slovakian PZU. It is a company that fits our strategy completely and we would like to become a strategic investor for Slovenska together with Eureko, of course, and the consortium. But it's a beauty contest and then an auction. So it isn't predictable. Of course, we would like to have an important market share in the Czech Republic and Slovakia, even if our participation in the privatization of Slovenska is not a success, by the acquisition of existing companies rather than a greenfield investment. There is a different situation in Ukraine, where today we find political risk too high. But we hope in the future we will be able to make a decision about investment there. It will be rather greenfield than the acquisition of another company. We would also like to be present in other transitional economies like Romania or Croatia, but in a more opportunistic way. For example, privatization in Croatia can also be an interesting opportunity for us and Eureko. But it isn't something that I find really necessary for us and extremely important.
Q: Are you considering a specific dollar or zloty amount for the investment?
A: I couldn't give you any figures.
Q: Could PZU survive as a company only operating in Poland?
A: You know, PZU will be part of the big European group Eureko, which is a group with the ambition to become one of the 10 biggest European insurers. PZU will be a Polish insurer existing within a big platform. And our market share in Central and Eastern Europe is something like 25%, so with such a market share which is only in Poland and the Polish market we can survive almost any big problem. But because we have no possibility of growing in Poland, we hope to grow abroad. Our know-how and our ability to change can be repeated in former communist transitional economies with a large economy of scale and good results both for PZU and the company that will be a part of the PZU group. We would like to do it, but it isn't crucial in the sense of surviving.
Q: How does a company like PZU transform itself from a state-owned company with a monopoly in the insurance market into a private-services company competing in the European market?
A: It is an extremely complicated issue because there are historically few examples of this development. Today's situation is that PZU is extremely strong in two markets property and life insurance which are core markets for PZU. From this point of view, PZU's market share has been stable in the last few years because of weak competition in these core markets. Of course, because of recent saturation, competition has now become more acute. On the motor insurance side we're in an extremely comfortable position because our cost base is low, we are able to manage our claims. We also have technical knowledge that allows us to propose more sophisticated and more selective products. There is some work to do, but I'm not afraid of our position in this market. Our competitors paid and will pay a very big price to take some part of this market share. But more complicated is life, where the barriers for entry aren't high and competition has become very tough. In this area we should find an active solution to keep our market share and to take on the competition on the individual level, which has been a flourishing market for the last six or seven years and where PZU's part of the market is still not sufficient.
Q: Does PZU have any special role or obligation in the market because of its dominant position?
A: Being the single biggest Polish investor and being the single biggest Polish insurer and having an almost 200-year tradition in Poland, we have some special obligation, as should all such companies with such a big role in a country. But we would like to see ourselves more as a normal big and strong, but normal company that fulfills a role in enterprise first.
Q: As you restructure, will layoffs be necessary?
A: It depends. The company is big and the guarantees for employment will end in November this year. But if we want to develop our new business areas, like housing insurance, like non-insurance products in our networks, maybe we will be able to keep employment on the same level. Our first thought in this company is first do no damage because it's a very profitable company today. Change that isn't well prepared and without a good dialogue with our employees can simply damage our business and this isn't our goal. Our network is one of our biggest assets. To demolish it is quite easy but to rebuild it is not.
Q: When Eureko and Big BG have 51% of the company, should PZU be considered a Dutch company or a Polish company?
A: You know Eureko has no specific national base and no specific national culture. It's a marriage between the Portuguese and Dutch, and adding small amounts of Irish, British, Greek or Polish people keeps this group really international without any specific national identity and creating a new common culture that is European, not specific to any nation. PZU is an important part of this group, so the influence of PZU on Eureko can be as important as the influence of Eureko on PZU. I'm sure we will still be a Polish company, but with a better capability to survive in the European milieu.
