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The Warsaw Voice » Business » August 26, 2010
Business & Economy
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Privatization: Hoping for a Record Year
August 26, 2010   
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Treasury Minister Aleksander Grad talks to Urszula Imienińska and Andrzej Jonas.

The Warsaw Stock Exchange is enjoying great success. After the successful sale of the PZU insurance company, which yielded the Treasury zl.5 billion and whose auction price was 15 percent higher than the issue price, the next lucrative transaction was the sale of the Tauron power company. How much did the Ministry of the Treasury earn on this deal?
Tauron was a very good transaction, perfectly estimated and adapted to the current trends on the Warsaw trading floor. As a result, the overall privatization revenue grew by an additional zl.4.2 billion. This year we have already earned in excess of zl.12 billion, while plans for the whole year provide for zl.25 billion.

Did you expect that 230,000 individual and 120 institutional investors would stand in line to buy Tauron shares, that investors would come not only from Europe but also Japan and the United States?
No. Preparing the offering, we estimated that Tauron could be of interest to about 130,000 individual investors, and some people said we were too optimistic. I think this success was due to at least two factors. One was trust in privatization, which we have conducted in a transparent way from the start of my term in office, being guided chiefly by market principles. This in turn is directly linked to the second factor, which I believe to be investors’ confidence that money spent on privatized companies is a good investment, that Poland is a good place to invest.

Why should privatization be treated as an opportunity rather than be seen in terms of selling off national assets?
The answer is very simple. Privatization is a business operation and anyone making decisions in this process should follow business principles and not some kind of personal interests or fear of “foreign capital.” Donald Tusk’s government was the first to prepare a privatization plan for its whole term in office and not for one year as was the practice before. Thanks to the government coalition’s consensus regarding this plan, we can avoid yearly disputes and it’s easier to plan our privatization activity. One of the key decisions was the introduction of transparent privatization rules, thanks to which every interested party can monitor how a given procedure is progressing, who is the adviser, who is the purchaser, and what the price is. Not only investors see that Poland now has a different climate for privatization—it’s cleaner. This builds trust.

Which privatizations do you consider the most successful, which ones fulfilled employees’ expectations and enabled the companies in question to develop?
There are many of them. You need to remember that since April 2008, the beginning of the Privatization Plan, we have concluded almost 300 projects. The Bogdanka mine is a good example. Its launch on the WSE in June 2009 and the completion of the privatization in March 2010 was a huge success, even greater when you consider that the mining sector in Poland is thought to be among the most difficult to handle. The IPO enabled investors to earn 17 percent on the very first day the mine was quoted on the exchange; the company received zl.528 million for investments and employees got free blocks of shares. This success was all the greater in that the transaction allowed us to overcome a losing streak when all the other markets were going through a crisis.

Which forms of privatization are you the happiest with?
The form of privatization, whether by auction, tender or negotiations, is chosen to best fit the type of company, its size, business environment and capital needs. We are working on improving the auction method, which is the quickest form. However, what is giving me the greatest cause for satisfaction recently is privatization via the stock exchange with the participation of “citizen share ownership.” PZU’s debut involved 250,000 individual investors, Tauron’s listing 230,000. These are people who want to be conscious market players as they take part in completing the Polish economy’s transformation.

Today privatization can be compared to a speeding locomotive. What is propelling it forward? Last year, the Treasury ministry reported its best result since 2004 on the sale of shares in state-owned companies, generating zl.6.59 billion.

I think this result, which was very good under the existing circumstances, was influenced the most strongly by the fact that Poland was the only country in Europe to come out of the crisis with positive GDP growth, at about 1.7 percent. It’s true that the crisis seriously depleted globally available funding, but that doesn’t mean investors stopped looking for good places to invest. Capital knows no frontiers and abhors a vacuum. Another major factor in accelerating privatization is the quality of our offering and how well it is prepared. One thing that’s very helpful in all this is the trust in privatization we have built over almost three years of hard work.

Another gem is going under the hammer in November—the Warsaw Stock Exchange. What are the expectations regarding this privatization? Who are the bidders? Do we know who will take part in the tender? On what will the final choice of investor depend, what terms will they have to fulfill, what guarantees will they have to offer? What is required of the future investor?
It’s too early yet to talk about prospective investors. In mid-July we selected a consortium of banks that will support us on this transaction, and chose the legal adviser a few days ago. As in the previous two historic stock-exchange privatizations, I’m counting on the participation of “citizen share ownership.” As for the actual formula of the privatization, we plan to sell 63 percent of the shares, and the Treasury will keep 25-30 percent. On July 30 the WSE General Meeting of Shareholders changed its charter to allow the Treasury to retain control over strategic decisions regarding the stock exchange’s development. We’re not seeking a single strategic investor for the WSE; we want everyone who contributes to its development to be able to take part in this historic transaction. It’ll be a huge success; the WSE is developing very rapidly indeed. It has just signed an agreement with NYSE Euronext on the purchase of an advanced transaction platform system. Both stock exchanges have also announced the start of strategic cooperation.

Analysts are increasingly speculating that thanks to this transaction Warsaw will become the financial hub of Central Europe. Do you agree?
Warsaw is already becoming a regional financial hub. I would like to remind you that the listing of Poland’s insurance company PZU was the biggest IPO in Europe in almost three years. The WSE is launching new tools, such as “short sales,” and this attracts new investors. I remember a discussion among analysts 18 months ago on how realistic it was that the WSE would be taken over by the Vienna Stock Exchange. Today the Polish exchange is establishing a strategic partnership with the New York Stock Exchange, while the Vienna bourse getting left behind is an undeniable fact.

More power sector companies are lined up for privatization: Enea and Energa. What are the ministry’s plans for them? Will their shares also be sold to individual investors?
Enea shares are available to individual investors on the WSE all the time. Early this year we placed in excess of 16 percent of the shares in this company on the Warsaw trading floor to increase liquidity and therefore the company’s attractiveness in the eyes of prospective investors. Right now we are in the middle of the next stage of privatization, targeted at institutional investors. On June 28 we invited prospective investors to negotiations on acquiring 51 percent of shares in this company.

The Energa share offering is also targeted at institutional investors, and we would be happiest with an investor from the power sector in this role. Energa has huge potential but needs large outlays and support with respect to its core business. That’s why I have decided this will be a better solution for the company than a stock exchange debut.

What other companies besides Energa and PGE are slated for privatization in the near future?
The government is transferring many sectors to the market via privatization. Apart from companies that are front-page news, there are many interesting though less famous companies on offer (....) Taking part in privatization, in one day you can become the country’s biggest manufacturer of firefighter helmets, matches or fishing nets. If someone is interested in acquiring real estate, they can invest in the Wrocław Press Center, which has two buildings in the heart of Wrocław; this could be a great opportunity in the context of the Euro 2012 soccer championships.

When will the big chemical factories go under the hammer?
The privatization of the Police and Puławy factories is in progress. So far we are observing substantial interest in the information memorandums. I hope this will translate into the number and quality of bids. Privatization is still a necessity in Poland’s chemical industry and we want to carry it out. Recent experience has also shown there is great potential in this sector’s consolidation. There are many opportunities for “synergy” among the companies from the bulk chemicals sector, so we are looking with a friendly eye at their work on ideas to expand their cooperation. This is no way contradicts the ongoing privatization, and could even strengthen the companies themselves and increase their attractiveness in the eyes of prospective investors. But, as I mentioned, this has to be a grassroots initiative. The companies themselves have to prove that the synergy is worthwhile and suggest the form of any consolidation.

You have said a lot about successes, but what could jeopardize the government’s privatization plan?
Recent months have taught us that the greatest danger for any business plan is turmoil on global markets. This can never be fully predicted. Nevertheless, I am optimistic. I would like to repeat that the Polish economy survived the turbulence that swept through the markets, and the rule “privatization for a good price, not at any price” has worked very well. I remember investors complaining just last year that our offering was good but they had no money. Today I hear this much less often.

Can we already say that 2010 will be a record year in terms of privatization revenue?
I am hopeful, but let’s wait until Dec. 31 before we pop the champagne.

What are the ministry’s plans for the coming years? What else is slated for privatization?
In view of the unsatisfactory bid we received from Rabobank, we have applied for an IPO for BGŻ bank. We want the debut to take place as soon as possible. We have 18 months to do it, but I think it should happen no later than in the first half of 2011. Most likely next year, we will also sell some PGE shares, retaining a majority stake. We are moving this operation from this year because otherwise 2010 would have too many offerings from the power sector and yet another transaction could have a negative impact on valuations. Plans for next year also provide for the sale of our real estate companies, including Dipservice and TONAgro. Only the first half of the year is behind us, while privatization is a very dynamic process, so I will be happy to talk about our offering for 2011 at the start of next year.
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