Wojciech Kostrzewa:
I don't believe that the state treasury is the best investor in the market economy and I always prefer to work with companies that have no links to the state treasury
BRE Bank President Wojciech Kostrzewa placed himself in the thick of one of the country's biggest corporate battles when he and allies engineered a 20% stake in Elektrim, the country's troubled power and telecom conglomerate. Kostrzewa is reportedly fighting for a greater role in management when the supervisory board meets April 10 and for time to pay back defaulted debt by selling off some assets -against the wishes of bondholders who want immediate satisfaction. The high-profile maneuver is not unusual for the 41-year-old banker, who sits at the head of the nation's sixth-largest listed bank, a unit of Germany's Commerzbank. Last week Kostrzewa talked with the WBJ's Paul Shockley about BRE Bank's activity on equity markets. The following is an edited version of their conversation.Q: What is your interest in Elektrim? Can the company be rescued?
A: Our interest is very simple. We want to make a profit on this transaction and this is the only driver for the bank. There is no hidden agenda linked to Elektrim. Who will rescue Elektrim? I don't know, I hope that all of the parties together once they start to cooperate. We are only one of the shareholders - it seems the largest one - but not the one that has control. We do not have any representatives on the supervisory board. The question should be asked to those sitting in these positions and the management board.Q: Is there a danger of BRE Bank getting in over its head in this situation? How does the bank see itself exiting?
A: There is no danger as far as I can judge. Our entry level was very low so we have a very limited downside, like always in an equity transaction, and quite a high upside. So I do believe that composition of the Polish version of the Chapter 11 process will be successful by the end of the day. What (Elektrim) needs is time and liquidity. This is a situation that is manageable for a strong management board and for a company that would enjoy a little bit of the support of the shareholders. There are various scenarios once the company would recover and have the opportunity to dispose of the assets and focus on one key activity, which should be, at least according to my best knowledge, the energy sector.Q: How will Elektrim's bondholders be repaid, and specifically, what assets should be sold?
A: I'm not a board member of Elektrim, so it's not a question for me. Everybody knows what the company's assets are. You have to dispose probably of some of the assets, or use it as collateral to get the necessary liquidity in addition to what Elektrim already has on its own accounts to repay bondholders according to a certain agreed schedule. If public information is true, this should be possible and I have always said it is clear that the repayment schedule has to be stretched, because it is almost impossible for Elektrim to get everything at once. But it seems that it is possible to repay the bondholders.Q: How long will that take?
A: I don't know. Again, I don't have access to internal information, and it is the board that has to make its own proposal. Q: Are minority shareholders adequately protected in Poland?
A: In general, yes. The problem is a slow court system and the enforceability of its decisions. In the case of Elektrim, it was the lack of support from the old management board that matters. By the way, portfolio shareholders are responsible for the situation we have right now (with Elektrim), because portfolio shareholders elected a majority of the supervisory board last May. Obviously, this supervisory board had problems fulfilling one of the most important tasks for every supervisory board: to appoint proper management. They ran the company for eight months with an acting president in a situation in which the company was already facing the liquidity issue for months. Q: BRE Bank continues to be very active on the equity market now. Do you see it playing a larger role in the restructuring of Polish companies?
A: We are ready to take this challenge. We have done it in the past, we are doing it currently, and we're ready to continue in the future. This may mean restructuring, this may mean private large-scale changes in ownership structure. Not necessarily privatization, because most of the privatization transactions are over. But there is the second and third wave of divestments, investments by various interested parties both locally and with the participation of international investors.Q: BRE has reportedly bought heavily into employee shares of insurer Powszechny Zakład Ubezpieczeń (PZU). What role, if any, do you see BRE Bank playing in the company's privatization?
A: I will not comment on market rumors. Second, it's quite normal after the privatization process between the Eureko consortium and the state treasury that any active player on the market would be interested in what may be the destiny of one of the largest companies in Poland. If PZU were listed, it would probably be one of the top three companies in terms of market capital.Q: Some have called Treasury Minister Wiesław Kaczmarek's replacement of management with political allies at state-run companies political capitalism.' How would you characterize it, and is it good for Poland?
A: It's well known that I don't believe that the state treasury is the best investor in the market economy, and I always prefer to work with companies that have no links to the state treasury. Secondly, I don't know what this circle of political allies for Mr. Kaczmarek is and I'm not sure I agree with you. Q: How do you see the treasury's active role now?
A: It is certainly his (Kaczmarek's) prerogative as an owner. This is why I would like to see speedy privatization because then we eliminate also the temptation for any successor in new governments to start a replacement wave again. Unfortunately, it was a bad habit of the Solidarity Election Action (AWS) government, which is now also visible. Although until now, the number of politically motivated replacements is still limited I think we have all seen the most visible (cases), but it's still relatively limited in terms of size. The state has nothing to do in the economy. Once we have a final state of the privatizations, there will be no issue of replacement or appointment of political friends.Q: What condition is corporate Poland in as European Union (EU) accession draws closer?
A: There's a different situation in different sectors. Some of the sectors are very well prepared for EU accession because of the ownership structure that they have taken. In the banking sector, probably more than 70% of the banks measured according to assets or total equity are owned by EU-based banks that know how to adjust to what may happen after EU enlargement should take place. Those sectors that are very protected, either officially or in practical terms, may have the biggest problems. It's challenging us also to learn how to act and how to behave in the long corridors of Brussels to get most of the potential support payments for Poland. It's not so easy, it's a bureaucratic process and you need to have guides, guidelines and understanding, and it is something that corporate Poland has to learn. Of course in this game, those who have EU-based parents or strategic investors can catch and utilize those resources, also in terms of high-level authorization of various support and support programs sponsored by the European Commission.Q: The Securities and Exchange Commission is investigating BRE Bank along with other investors on whether disclosure requirements were fulfilled while building up shares in Elektrim. Will BRE Bank be cleared?
A: I'm absolutely confident that BRE Bank will be cleared and I've mentioned many times that we have never used and utilized any non-public information for our investments.Q: You worked with Leszek Balcerowicz in reshaping the Polish economy in 1989. Can you describe that period? Where is Poland today and what are the biggest challenges ahead?
A: The challenge at that time was first to believe that an economy destroyed by hyperinflation after 40 years of a planned economy and a shortage of everything, can survive a radical change of paradigm, and that such radical change was feasible. I think Mr. Balcerowicz and the group of economists and politicians who supported him to develop the shape of the final economic program just believed that it is better to side with those radical changes than to try and go for step-by-step changes. And I think there was no other way. We can discuss whether some of the parameters were set in a perfect way or not; probably not because it's not possible to do everything perfectly having such huge time pressures and limited ability to extract the information about the economy. Today, Poland is the only country in the region that after the initial recession, hasn't had another one for the last 10 years, whereas the Czech Republic went into recession in the late 1990s for two years, Hungary had it in the mid-1990s. We have had a slowdown in terms of economic growth for 2001, but that's not a recession. Many countries would like to have 1% growth instead of minus two or minus three. Poland is a very different country today, and I think it is ready in various sectors for EU entry. This reform program has released the entrepreneurial spirits of many millions of Poles and this is the biggest challenge for any government: not to kill this entrepreneurial spirit. We have to pay taxes, work hard and fight against corruption, but on the other hand the government should be responsible for removing all the bureaucratic obstacles that are restricting Polish entrepreneurs more and more.Q: Are these barriers adequately addressed in Finance Minister Marek Belka's plans for economic recovery?
A: It's at least a move in the right direction. An organization in which I am one of the vice presidents, the Polish Business Roundtable, expressed its general support for this program, especially for the parts dealing with the removal of obstacles for small- and medium-sized companies, and entrepreneurs in general. I hope that these promises will be reached, and there are other requests from organizations like the Polish Business Roundtable for cutting tax rates and the simplification of the tax system to create a competitive environment. People on the business side understand that upon EU enlargement, Poland will not only compete with lower labor costs or lower rents but also as a location for business, because then I'm completely free as a company and there are many companies that are not linked to a concrete site that can be registered somewhere else in the EU and do business in Poland. These companies will look around and check if it's worth keeping their headquarters in Warsaw or if it's better to move to Dublin. This constitutes an enormous challenge for Polish administration. It will be exposed to this type of competition. It's in the interest of the Polish taxpayers, the population, and the government to have as many taxpayers as possible in this country, because then it's likely more people will be paying taxes and the tax levels will be lower - stimulating economic growth.
BRE Bank President Wojciech Kostrzewa placed himself in the thick of one of the country's biggest corporate battles when he and allies engineered a 20% stake in Elektrim, the country's troubled power and telecom conglomerate. Kostrzewa is reportedly fighting for a greater role in management when the supervisory board meets April 10 and for time to pay back defaulted debt by selling off some assets -against the wishes of bondholders who want immediate satisfaction. The high-profile maneuver is not unusual for the 41-year-old banker, who sits at the head of the nation's sixth-largest listed bank, a unit of Germany's Commerzbank. Last week Kostrzewa talked with the WBJ's Paul Shockley about BRE Bank's activity on equity markets. The following is an edited version of their conversation.Q: What is your interest in Elektrim? Can the company be rescued?
A: Our interest is very simple. We want to make a profit on this transaction and this is the only driver for the bank. There is no hidden agenda linked to Elektrim. Who will rescue Elektrim? I don't know, I hope that all of the parties together once they start to cooperate. We are only one of the shareholders - it seems the largest one - but not the one that has control. We do not have any representatives on the supervisory board. The question should be asked to those sitting in these positions and the management board.Q: Is there a danger of BRE Bank getting in over its head in this situation? How does the bank see itself exiting?
A: There is no danger as far as I can judge. Our entry level was very low so we have a very limited downside, like always in an equity transaction, and quite a high upside. So I do believe that composition of the Polish version of the Chapter 11 process will be successful by the end of the day. What (Elektrim) needs is time and liquidity. This is a situation that is manageable for a strong management board and for a company that would enjoy a little bit of the support of the shareholders. There are various scenarios once the company would recover and have the opportunity to dispose of the assets and focus on one key activity, which should be, at least according to my best knowledge, the energy sector.Q: How will Elektrim's bondholders be repaid, and specifically, what assets should be sold?
A: I'm not a board member of Elektrim, so it's not a question for me. Everybody knows what the company's assets are. You have to dispose probably of some of the assets, or use it as collateral to get the necessary liquidity in addition to what Elektrim already has on its own accounts to repay bondholders according to a certain agreed schedule. If public information is true, this should be possible and I have always said it is clear that the repayment schedule has to be stretched, because it is almost impossible for Elektrim to get everything at once. But it seems that it is possible to repay the bondholders.Q: How long will that take?
A: I don't know. Again, I don't have access to internal information, and it is the board that has to make its own proposal. Q: Are minority shareholders adequately protected in Poland?
A: In general, yes. The problem is a slow court system and the enforceability of its decisions. In the case of Elektrim, it was the lack of support from the old management board that matters. By the way, portfolio shareholders are responsible for the situation we have right now (with Elektrim), because portfolio shareholders elected a majority of the supervisory board last May. Obviously, this supervisory board had problems fulfilling one of the most important tasks for every supervisory board: to appoint proper management. They ran the company for eight months with an acting president in a situation in which the company was already facing the liquidity issue for months. Q: BRE Bank continues to be very active on the equity market now. Do you see it playing a larger role in the restructuring of Polish companies?
A: We are ready to take this challenge. We have done it in the past, we are doing it currently, and we're ready to continue in the future. This may mean restructuring, this may mean private large-scale changes in ownership structure. Not necessarily privatization, because most of the privatization transactions are over. But there is the second and third wave of divestments, investments by various interested parties both locally and with the participation of international investors.Q: BRE has reportedly bought heavily into employee shares of insurer Powszechny Zakład Ubezpieczeń (PZU). What role, if any, do you see BRE Bank playing in the company's privatization?
A: I will not comment on market rumors. Second, it's quite normal after the privatization process between the Eureko consortium and the state treasury that any active player on the market would be interested in what may be the destiny of one of the largest companies in Poland. If PZU were listed, it would probably be one of the top three companies in terms of market capital.Q: Some have called Treasury Minister Wiesław Kaczmarek's replacement of management with political allies at state-run companies political capitalism.' How would you characterize it, and is it good for Poland?
A: It's well known that I don't believe that the state treasury is the best investor in the market economy, and I always prefer to work with companies that have no links to the state treasury. Secondly, I don't know what this circle of political allies for Mr. Kaczmarek is and I'm not sure I agree with you. Q: How do you see the treasury's active role now?
A: It is certainly his (Kaczmarek's) prerogative as an owner. This is why I would like to see speedy privatization because then we eliminate also the temptation for any successor in new governments to start a replacement wave again. Unfortunately, it was a bad habit of the Solidarity Election Action (AWS) government, which is now also visible. Although until now, the number of politically motivated replacements is still limited I think we have all seen the most visible (cases), but it's still relatively limited in terms of size. The state has nothing to do in the economy. Once we have a final state of the privatizations, there will be no issue of replacement or appointment of political friends.Q: What condition is corporate Poland in as European Union (EU) accession draws closer?
A: There's a different situation in different sectors. Some of the sectors are very well prepared for EU accession because of the ownership structure that they have taken. In the banking sector, probably more than 70% of the banks measured according to assets or total equity are owned by EU-based banks that know how to adjust to what may happen after EU enlargement should take place. Those sectors that are very protected, either officially or in practical terms, may have the biggest problems. It's challenging us also to learn how to act and how to behave in the long corridors of Brussels to get most of the potential support payments for Poland. It's not so easy, it's a bureaucratic process and you need to have guides, guidelines and understanding, and it is something that corporate Poland has to learn. Of course in this game, those who have EU-based parents or strategic investors can catch and utilize those resources, also in terms of high-level authorization of various support and support programs sponsored by the European Commission.Q: The Securities and Exchange Commission is investigating BRE Bank along with other investors on whether disclosure requirements were fulfilled while building up shares in Elektrim. Will BRE Bank be cleared?
A: I'm absolutely confident that BRE Bank will be cleared and I've mentioned many times that we have never used and utilized any non-public information for our investments.Q: You worked with Leszek Balcerowicz in reshaping the Polish economy in 1989. Can you describe that period? Where is Poland today and what are the biggest challenges ahead?
A: The challenge at that time was first to believe that an economy destroyed by hyperinflation after 40 years of a planned economy and a shortage of everything, can survive a radical change of paradigm, and that such radical change was feasible. I think Mr. Balcerowicz and the group of economists and politicians who supported him to develop the shape of the final economic program just believed that it is better to side with those radical changes than to try and go for step-by-step changes. And I think there was no other way. We can discuss whether some of the parameters were set in a perfect way or not; probably not because it's not possible to do everything perfectly having such huge time pressures and limited ability to extract the information about the economy. Today, Poland is the only country in the region that after the initial recession, hasn't had another one for the last 10 years, whereas the Czech Republic went into recession in the late 1990s for two years, Hungary had it in the mid-1990s. We have had a slowdown in terms of economic growth for 2001, but that's not a recession. Many countries would like to have 1% growth instead of minus two or minus three. Poland is a very different country today, and I think it is ready in various sectors for EU entry. This reform program has released the entrepreneurial spirits of many millions of Poles and this is the biggest challenge for any government: not to kill this entrepreneurial spirit. We have to pay taxes, work hard and fight against corruption, but on the other hand the government should be responsible for removing all the bureaucratic obstacles that are restricting Polish entrepreneurs more and more.Q: Are these barriers adequately addressed in Finance Minister Marek Belka's plans for economic recovery?
A: It's at least a move in the right direction. An organization in which I am one of the vice presidents, the Polish Business Roundtable, expressed its general support for this program, especially for the parts dealing with the removal of obstacles for small- and medium-sized companies, and entrepreneurs in general. I hope that these promises will be reached, and there are other requests from organizations like the Polish Business Roundtable for cutting tax rates and the simplification of the tax system to create a competitive environment. People on the business side understand that upon EU enlargement, Poland will not only compete with lower labor costs or lower rents but also as a location for business, because then I'm completely free as a company and there are many companies that are not linked to a concrete site that can be registered somewhere else in the EU and do business in Poland. These companies will look around and check if it's worth keeping their headquarters in Warsaw or if it's better to move to Dublin. This constitutes an enormous challenge for Polish administration. It will be exposed to this type of competition. It's in the interest of the Polish taxpayers, the population, and the government to have as many taxpayers as possible in this country, because then it's likely more people will be paying taxes and the tax levels will be lower - stimulating economic growth.
