03 June 2008 00:00 [Source: ICB]
Poland's ruling party plans a wave of privatization that includes chemicals. How attractive is the offering?
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THE POLISH government says it will exit completely from Poland's chemical sector by 2011 as part of what new prime minister Donald Tusk has called a "daring" privatization drive.
Under the plan, 19 chemical companies will be privatized within the next two to three years.
There are, however, no plans to sell off the state's controlling interest in the refiner PKN Orlen, which is by far the predominant petrochemical producer in Poland and, through its subsidiary group Unipetrol, the Czech Republic.
Michal Chyczewski, undersecretary of state at the Ministry of the Treasury, which is overseeing the privatization, says that Poland's energy security strategy does not countenance the sale of Orlen.
"In every case you can argue that state ownership acts against the fast development of these [strategic] companies [such as Orlen]," he says. "But I have a conservative viewpoint that this does not in each case always prove right."
Brussels has not pressured Poland to release Orlen from its control, he adds. "The EU does not perceive state ownership of everything as against the EU Treaty."
Peter Tordai, senior equity analyst for Central Eastern European energy sector research at equities house KBC Securities Hungary, says that the privatization of Orlen is clearly a political question, and he does not expect it in the short to medium term. "Obviously, minority shareholders would welcome a potential privatization, as politics is clearly a risk factor for Orlen," he adds.
ON THE BLOCK
In total, the privatization announced by Tusk and his liberal Civic Platform (PO) party should see the disposal of 740 state companies by 2011, with the state budget set to benefit by as much as zlotych (Zl) 30bn ($14bn, €8.7bn) if all goes according to plan. Treasury Minister Aleksander Grad has said there will be "full privatization" of companies in the chemical, transportation, pharmaceutical, furniture and timber sectors. Most of the larger privatizations will take the form of initial public offerings (IPOs) on the Warsaw Stock Exchange (WSE), while the smaller sell-offs will be handled through tenders.
One IPO that could tempt investors is the sale, scheduled for 2010, of the 36.68% that the state continues to hold in Poland's largest producer of base chemicals, Ciech. A group of more than 30 companies, Ciech is Europe's second-largest soda ash producer.
With annual sales of Zl3.5bn, the firm outstrips other Polish chemical companies in size. Last year, Ciech bought controlling stakes in former state firms Zaklady Chemiczne Zachem, Poland's largest producer of toluene di-isocyanate (TDI) and a maker of epichlorohydrin (ECH), and Zaklady Chemiczne Organika-Sarzyna, a producer of epoxy and polyester resins.
Other substantial activities of Ciech subsidiaries include production of plant protection chemicals, phosphate fertilizers and chemicals for the glass, furniture, construction and food industries.
Other notable companies up for privatization include two Central European leaders in nitrogen fertilizer production, Zaklady Azotowe Tarnow (ZAT) and Zaklady Azotowe Kedzierzyn (ZAK). ZAT, which also produces caprolactam (capro) and plastics, should move ahead with its IPO this year, while ZAK, which also produces modest volumes of plastics and petrochemicals, should hold its IPO in 2009.
Polish natural gas monopoly PGNiG has clearly stated its interest in buying stakes in ZAK and ZAT in order to prevent other gas distributors from controlling the 2.4bn m3/year of natural gas the two companies supply to the fertilizer and chemical sectors. PGNiG's plans also include snapping up a stake in Zaklady Chemiczne Police (ZChP), another nitrogen fertilizer producer that makes titanium dioxide, as well. The state is set to put 68.2% of ZChP up for sale in a public offering in either 2009 or 2010.
Ciech has also expressed an interest in buying ZChP, perhaps using the proceeds generated by floating a portion of its own stock. It is intent on spending Zl4.8bn on a series of domestic and foreign acquisitions and investments up to 2011.
The company says another target could be melamine, capro and nitrogen fertilizer producer ZA Pulawy (ZAP). The privatization plan foresees 50.73% of ZAP being floated on the Warsaw bourse in 2009 or 2010. For its part, ZAP last week announced a "strategic alliance" with ZChP to combine their power to negotiate a cap on surging natural gas costs. The two companies said they are also planning to buy up Polish and foreign suppliers of natural resources such as gas, potash and sulfur.
Chyczewski says the government was determined to stamp all the privatizations with openness and transparency. "We will be having open tenders, so Ciech could buy stakes like all investors - Polish and foreign. No investors will be getting preferential treatment."
Tordai is not convinced that the chemical company privatization will attract much interest from abroad, however.
"The market was excited recently on fertilizer makers, but petchem producers are currently not favored," he says. "I think the small Polish petchem producers would attract only moderate interest on the international stock markets, unless they have a special investment story."
Demand for fertilizers is of course rising, with worldwide stockpiles of wheat, corn and other staple crops diminished because of soaring food demand from developing countries.
One consequence of the refreshed privatisation approach has been a new lease of life for the government's special purpose vehicle for the restructuring of the oil and chemical sectors, Nafta Polska (NP). NP has been asked to handle the IPOs of ZAK and ZAT, after which, says Chyczewski, it will be wound down.
The privatization of the country's chemical sector has been delayed, he adds, because "the previous government were more committed to stopping privatization than pushing ahead with it." He says the experience of Germany's Petro Carbo Chem (PCC) - in 2006 it won tenders to buy ZAK and ZAT, only to later be informed by government officials that the sales had been canceled - was a possible example of this. "My view is simply that a lot of privatizations could have been finished but for the intentions and actions of the former ministry of the treasury," Chyczewski concludes.
Other items on the sell-off slate include the state's remaining 5.19% in Zaklady Chemiczne Zachem, its remaining 5.06% in Zaklady Chemiczne Organika-Sarzyna, its 100% in rubber products maker Bydgoskie Zaklady Przemyslu Gumowego (STOMIL), and 5.54% that it still holds in polyvinyl chloride (PVC) and nitrogen fertilizer maker ANWIL, an enterprise in which Orlen holds a majority stake.
Orlen, meanwhile, has been discussing putting a large piece of ANWIL's share capital into an IPO in the near future. ANWIL, which last year purchased Czech PVC and capro maker Spolana from Unipetrol, is another potential bidder for shares in ZAK and ZAT.
Old plans to merge Orlen with Hungarian oil, gas and petrochemical group MOL are off, says Chyczewski. That "is not a concept that I think is being analyzed in the government."
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