PZU privatization continues with flotation
The Treasury Ministry said last week that it would move forward on the second stage of the privatization of state-owned insurer Powszechny Zaklad Ubezpieczen (PZU) later this year by floating 25% of the company on the Warsaw and London stock exchanges.
The decision leaves European insurer Eureko and BIG Bank Gdanski (BIG BG) in the short term as the only strategic investors in PZU. After the flotation, BIG BG and Eureko will hold 10% and 20% of PZU respectively; 25% will be publicly traded; and the Treasury Ministry will retain 45%.
Deputy Treasury Minister Alicja Kornasiewicz said last week that the ministry's plan to continue the privatization had nothing to do with the situation around BIG BG and with the insurer's attempts to sell its 8.6% stake in BIG BG to Deutsche Bank, thus helping the German institution complete a hostile takeover of the Polish bank. The ministry has criticized PZU's management for acting against the government's wishes despite the fact that the treasury now owns 70% of the insurer.
In addition, the Warsaw regional court on Thursday barred PZU from selling those shares to Deutsche Bank. Two days earlier, PZU had sold 2.99% of BIG BG to Deutsche Bank for zl. 12.7 million ($3.09 million), zl. 14 per share.
PZU had little to say last week about the ministry's decision. "The treasury has a decisive voice, and we are just an object of this transaction and not its subject," said Adam Taukert, PZU press spokesman. "So naturally PZU will submit to the owner's decision."
Under the ministry's plan, two-thirds of the 25% offered in PZU will be sold on the Warsaw Stock Exchange (WSE), with the remaining third listing on London as global depository receipts (GDRs). The ministry plans to retain about 45% of PZU, which means that it may also choose to float a further 25% on public markets, analysts said. Either way, the ministry said it intends to complete PZU's privatization by the end of next year.
Janusz Lewandowski, a member of Parliament's treasury committee, said the Treasury Ministry is trying to balance selling control in PZU outright or having a more dispersed shareholding. "If a company needs an injection of know-how and better organization, a strategic investor seems to be a better solution," he said. "But, on the other hand, large banks and insurers should be publicly listed, and thus transparent, companies."
Jakub Papierski, an analyst with Deutsche Bank, said financially weak PZU needs one strong strategic investor that can provide clear leadership. "Personally, I prefer this kind of privatization and it's more beneficial from the treasury's point of view," he said.
But analysts said last week that the ministry had always intended to sell a minority stake in PZU to an investor and the rest on public markets. "Flotation has always been part of PZU's privatization plans," said Artur Szeski, an analyst with CDM Pekao Securities. "Besides, we have never been sure whether the 30% package (sold to Eureko and BIG BG) is an invitation to become a strategic investor."
Szeski added that the ministry's decision to float such a large stake seems to indicate, however, that Eureko and BIG BG will be the only investors of the government's choosing. The dispersed shareholding structure should secure Eureko's control over PZU, he said. If BIG BG does go to Deutsche Bank, the German institution has already said it would sell the Polish bank's 10% stake in PZU. Eureko would like to purchase that stake, said Lorri Morgan, Eureko's spokeswoman.
"If we have 30% of PZU's stake in one hand and let's say another 25% on the stock market, Eureko will still have a lot to say in this company," Szeski said. "I agree however, that anyone who regards itself as a strategic investor will sooner or later try to gain majority control over a company."
How long Eureko stays in control or wants to be in control is the question, Szeski said. With such a large percentage of PZU floated publicly, he said it would not be difficult for an outside party to come in. If "25% of PZU is to be floated and 15% might go to PZU's employees, that makes 40% on the market vs. 30% to be held by Eureko," he said. That scenario assumes the Treasury Ministry maintains a 30% stake.
Another possibility, Szeski said, is that Eureko may buy up some of the publicly traded shares to secure its position.
According to Morgan, her company will be interested in PZU's public offer once the Treasury Ministry, the insurer's 70% shareholder, "gets its house in order."
