OUTLOOK '11: Poland privatisations may finally be successful

28 December 2010 15:30  [Source: ICIS news]

By Will Conroy

PRAGUE (ICIS)--In a little over three years Poland's attempts to complete the privatisation of its chemical industry has twice come off the rails because of major disagreements over valuations.

However, analysts feel a third effort in 2011 might finally deliver success.

Nevertheless, before another privatisation effort can even be announced, the companies involved would have to convince the Polish treasury ministry that they have made progress in their efforts to bring about fresh consolidation, restructure and pay down debts.

For instance Poland's largest chemical group, Ciech, is busy trying to repay around a quarter of its debts of around zlotych (Zl) 1.6bn ($528m, €400m) by next spring; raise financing from the European Bank for Reconstruction and Development (EBRD); bring in a few hundred million zlotych from a share capital increase; possibly sell Romanian soda ash subsidiary US Govora Ciech, and shed its agrochemical and silicates and glass divisions.

"I'd say Ciech is not wasting any time, every month brings concrete solutions and progress in reshaping the company," said treasury deputy minister Adam Leszkiewicz.

December 2010 saw Ciech, Europe's second-largest soda ash producer, agree to sell phosphorous fertilizer unit Fosfory Ciech to Poland's largest fertilizer producer, Zaklady Azotowe Pulawy (ZAP).

This is a move that could conceivably make ZAP more interesting to investors, who have been instructed to finalise their binding privatisation bids for it and the second-largest Polish fertilizer producer, severely indebted Zaklady Chemiczne Police (ZChP), by January 15.

By the time it is ready for a privatisation relaunch, Ciech may no longer be Poland's largest chemical group. That distinction may go to Zaklady Azotowe Tarnow (ZAT) which, through the acquisition of a controlling stake in Zaklady Azotowe Kedzierzyn (ZAK), planned to target annual revenues in excess of Zl 3.5bn.

However ZAT and ZAK, along with Poland's other fertilizer producers, would continue to prove unattractive to many potential buyers unless Polish gas prices were deregulated, according to Robert Gwiazdowski, president of Warsaw-based think tank the Adam Smith Centre.

"Normally, if a company purchases a lot of gas it gets a discount, but not with the 'state prices' of the Polish [monopoly] system," he said, while hoping for substantial change in this area in the new year.

Another Polish company that could find itself back on sale in 2011 is the largest central and eastern European polyvinyl chloride (PVC) producer, Anwil - but not before state-held owner PKN Orlen has split away its nitrogen fertilizer business.

Raiffeisen Centrobank analyst Philipp Chladek feared Orlen's restructuring and debt-reduction efforts had "ground to a halt for the time being" but could pick up pace again were Anwil to be disposed of.

"Given the current overcapacity in fertilizer production, my personal opinion is that the fertilizer production could be closed down and only the PVC production will be sold," he said.

Both Orlen and Czech subsidiary Unipetrol could be among central and eastern European petrochemical producers which might start noticing a market squeeze in 2011, caused by cheaper commodity petrochemicals flowing into Europe from new capacities coming online in the Middle East.

The companies possessed the knowhow to switch to more niche products and would have to show they had the ability to use it to good effect, Chladek added.

Three other central and eastern European companies that could be in the news in the next 12 months are Czech synthetic resins producer Spolchemie, Hungarian isocyanates and PVC producer BorsodChem and Romanian PVC producer Oltchim.

By mid-January, Spolchemie must convince banks that hold all its assets as collateral that it is fighting fit once more and thus deserves a refinancing of its potentially crippling debts.

BorsodChem expects to be fully taken over by China's Wanhua Industrial Group, while Oltchim, which is awaiting a European Commission ruling on whether or not a government-backed rescue plan infringes state aid or competition laws, may find itself privatised following pressure on Romania from the International Monetary Fund (IMF).

($1 = €0.76, Zl 3.03)

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By: Will Conroy
+44 20 8652 3214



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