Wednesday, June 27, 2001

Rumors of low bids plague Komercni's sale Questions raised about manipulation, deficits By Frantisek Bouc The process of picking a buyer for the country's last major bank in state hands appears to be nearing completion, but not without a roller-coaster finish. On June 20, shares of Komercni banka, which the government is hoping to sell as early as this summer, fell 5.5 percent. The slip was driven by a report in a local newspaper, citing unnamed sources, that said the bids submitted for the bank were at least 10 billion Kc ($250 million) below government expectations. Later that day -- and ever since -- sources close to the deal have called the reported numbers incorrect. Now the country's Securities and Exchange Commission is looking into the initial reports, investigating whether there was a deliberate attempt to manipulate the bank's stock prices. Deals closed the day the stock fell will be examined by the regulatory organization, said spokeswoman Radka Prochazkova. Four foreign institutions submitted bids for Komercni, one of the last major banks for sale in Central and Eastern Europe. Once it's gone, analysts say it will be difficult for outside companies to establish a major banking presence in this emerging region. One of the bidders, France's Credit Agricole, has dropped out, leaving another French bank, Societe Generale, as well as Italy's UniCredito and Germany's HypoVereinsbank, in the running. Several media reports said Societe Generale and UniCredito turned in similar bids -- not far below the government's hoped-for 40 billion Kc -- while HypoVereinsbank's was lower. Neither the banks nor sources with the National Property Fund (FNM) would confirm or deny the totals. The government's privatization adviser, Goldman Sachs, is expected to choose the winning bid shortly, said Tomas Potmesil, deputy finance minister. Others say it may take longer. The government's main concern is to sell the bank as quickly as possible to raise badly needed funds, with a goal to cash the check by the end of the year. The reports about Komercni bids being lower than expected caused a stir not only among securities regulators, but also with those who balance the country's budget. In addition to taxes and bonds, privatizations are one of the largest sources of government revenue, and several key privatizations that had been counted on this year will likely roll into next year. In addition to the Komercni sale, bidding on the Prague waterworks, Jan Becher-Karlovarska Becherovka distillery and two large telecommunications conglomerates, Ceske radiokomunikace and Cesky Telecom, was planned for this year. The sell-off of most of the country's energy sector, including CEZ and Transgas, was also expected. So far, only the waterworks has been sold, raising 6 billion Kc. The privatizations of Komercni and Jan Becher are on the short-term agenda, said Jana Viskova, an FNM spokeswoman, especially now that Jan Becher's buyer, Salb, has agreed to move forward despite pending trademark challenges to the company's flagship product, Becherovka. Several of the key privatizations, including those of CEZ and Cesky Telecom, are being held up due to forces beyond Czech control. The complicated energy privatization is struggling under its own weight, as well as because of protests over the Temelin nuclear power plant. The world's telecommunications industry is suffering its largest financial setbacks in decades -- due to a maturing market for mobile phones, among other causes -- and the enthusiasm for the country's telecom giant is expected to wane. "Given the objective difficulties on worldwide markets, and subjective problems of particular companies, it is not certain that the [privatization] project will be brought to an end in time," Viskova said. The FNM has reduced its estimate for this year's privatization proceeds from 180 billion Kc to 100 billion Kc. Marek Fer, an analyst with Ceskoslovenska obchodni banka, thinks the recalculation didn't go far enough. "They should reduce their estimates to only 50 billion Kc," Fer said. He predicts the government won't be able to unload anything this year beyond the waterworks, Komercni, Jan Becher and Ceske radiokomunikace. Even if the total is not as low as Fer predicts, the lower-than-expected revenue has consequences for the country's financial image. The Finance Ministry had been targeting a 20.5 billion Kc deficit this year, down from last year's 46.1 billion Kc. But that figure counted on privatization revenues of 170 billion Kc, which was considered a safe number when the estimates were drawn up. With the recent questions being raised about key state sell-offs, Finance Minister Jiri Rusnok recently said that the public finance deficit could be as much as five times higher, topping out, in the worst case, at 120 billion Kc. The country's creeping deficit has elicited criticism from the World Bank, the European Union and, most recently, the European Parliament, whose foreign committee issued a warning to the Czech Republic about its rising spending gap. 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