Share swap in the offing?

The State Treasury is likely to greenlight a share swap with Grupa Lotos, according to analysts. The Treasury will give the oil giant its shares in Petrobaltic, receiving in return an issue of new shares from Lotos. This is expected to increase the Treasury stake in Lotos from 59 percent to over 70 percent.

"The Treasury has announced it could sell its stake in Petrobaltic, but there are two scenarios," explained BRE Bank Securities equity analyst Kamil Kliszcz. "The ministry is considering selling the assets for cash, or for new shares in Lotos."

Kliszcz explained that the share swap option was more favorable for Lotos as the firm is already drawing on all available funds to finance its investment program. "Petrobaltic is worth around zł.2.5 billion with the high price of crude oil," said Kliszcz.

If Petrobaltic's value matched that estimate, Lotos would have to hand over around zł.700 million in shares or cash in order to acquire the Treasury's 30.3-percent stake.

"The timescale for the transaction depends on the ministry making a decision. In 2007, the ministry preferred to sell the stake for cash but Lotos' CEO [was against it] and so the ministry was forced to consider the alternative option," said Kliszcz.

The issue of the Treasury's decision is further complicated by other activities at Lotos. The firm is currently seeking the Treasury's approval for its investment program. As the oil giant's largest shareholder, the Treasury called for a break in the last general shareholder's meeting so it could seek the advice of analysts before approving the program.

Kliszcz noted that if the decision to swap the shares was taken, the transaction should be completed quickly.