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Wednesday, August 16, 2000
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Government considers guarantee as it prepares for KB privatization in the middle of next year By Lisa Gonderinger Is it worth the cost and criticism to risk taxpayer money -- as much as 20 billion Kc ($513 million) -- on the process? Officials at Komercni banka (KB), the country's third-largest bank, say it is. CEO Radovan Vavra says if the state agrees to guarantee the bank's worst bad debt before putting it on the auction block next month, it will significantly increase the quantity and the quality of bidders who come to the table. "I can confidently say it would at least double the interest," he said. The Finance Ministry is hoping to put out a call for bids in mid-September, and pick a winner by next March. The more suitors, the more the pressure of competition will drive up the price, Vavra said. He estimates the state's majority stake could sell for between 40 billion Kc and 60 billion Kc, depending on whether a bad-debt guarantee is part of the deal. But even more important than the number of bidders is the type of bidders, Vavra said. A bank with a risky-looking balance sheet -- KB reported a first-half net loss of 632 million Kc this year -- would likely attract investment banking firms looking to pick it up cheaply. What the bank needs, though, is a strategic partner that's skilled in commercial and retail banking, he said. They'd likely be scared off if a guarantee wasn't part of the deal. Not focusing on this can prove fatal, as the Czech Republic learned this year. Investicni a postovni banka (IPB), its largest bank, collapsed just two years after being privatized by an investment banking firm with little experience -- or desire -- in building a commercial bank. The fiasco, still being sorted out, will cost the government billions. Analysts say the privatization of Ceska sporitelna, one of the country's largest banks, also provides lessons. The government tried to sell the bank without a balance-sheet cleanup, and netted only one bidder, Austria's Erste Bank. That left the state with no bargaining power, and it wound up granting a sizable and highly criticized guarantee anyway because of it. Still, for all the reasons a guarantee for KB's bad loans makes sense, it might never happen. Government officials have vowed never to spend another crown to help out the country's banking sector. They've already poured hundreds of billions of crowns into cleanups, and continual evidence of corruption, mismanagement and bad deals erodes public support. "From an economic point of view, giving a guarantee is an easy question," said Jiri Stanik, an industry analyst with Wood & Co. "From a political point of view, it will be very difficult for the government to explain why it's willing to pour additional money into this." The government had hoped to sell KB by the end of the year, but the tender had to be reworked after an 8 billion Kc loan scandal led to the firing of the bank's board of directors this spring. At least 11 of the former high-ranking managers are under investigation and possibly on their way to jail. Vavra said the bank has filed suit in Austria against BCL Trading, the recipient of the questionable loan, in an attempt to recover funds. Even with all the black marks in KB's past and present, analysts say it shouldn't have trouble attracting interest. In the last year, an internal restructuring has set in motion the firing of 3,000 workers, the questioning of every project and its cost, and the reworking of the bank's long-term strategy. Though KB posted a 632 million Kc loss for the first half of this year, that's down from a 5.12 billion Kc loss for the first half of 1999. KB also is the last major opportunity in Central and Eastern Europe to buy an established bank, one that controls about one-fourth of the market. Plus, Vavra said the International Monetary Fund/World Bank conference to be held in Prague next month will be a key opportunity to let interested bidders check out the region and meet with government officials. "When I think of the coincidence that such an important event is being held in Prague right as we're trying to show the world what an opportunity there is in this market, it is just a present from heaven." Lisa Gonderinger's e-mail address is lgonderinger@praguepost.cz More Business stories
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The Prague Post, a weekly newspaper published in the Czech Republic.
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