Privatization Near to Collapse in Poland's Chemical Sector
Poor timing means that Polish ministers may have lost the opportunity to complete the privatization of Poland's chemical industry
IT WAS late spring 2008 when Poland's treasury minister, Aleksander Grad, pledged a full revival of the sell-off process that had stalled two years previously under the former government.
Grad had pledged rapid progress as officials strived to privatize the state's remaining holdings in 19 chemical and fertilizer producers within two to three years. But the minister, of course, hadn't spotted the severity of the global economic black clouds gathering overhead.
By now, Nafta Polska, the state agency that oversees chemical industry privatizations, offers a far more sober perspective on the course the sell-offs are likely to take. Analysts weighing the latest comments from the agency are convinced that a possible postponement of the process is on the cards.
"The treasury let fat years slip by due to political reasons and now, when the sector's momentum is worsening and listed chemical stocks have collapsed, we doubt the treasury could find the investors ready to pay it as much as it would have received back in 2006," says Barbara Zaleska, a Warsaw-based chemical industry analyst at investment bank Wood & Company.
"In our opinion, the privatization should be reassessed due to tough economic conditions in the sector," she adds.
Kamil Kliszcz, an oil, gas and chemical industries analyst at Poland's BRE Bank, concurs. "The right time for this privatization was missed," he says.
"It is now doubtful it can succeed in the remaining few years of the lifetime of this government. The Warsaw stock market lost a third of its value in the months after the financial crisis began, and it is difficult to sell companies in such an environment. Initial public offerings [IPOs] are not likely to achieve prices acceptable to the government."
Wieslaw Skwarko, deputy CEO of Nafta Polska, said a final decision on launching the sale of the biggest Polish chemical companies that feature in the privatization would be taken by April, based on the advice of a leading merchant bank appointed as a financial adviser.
"The whole situation requires a reassessment of our approach. Timing may also be modified. However, we are strongly motivated to complete the privatization as quickly as possibly, but not for any price. We are in touch with potential investors from different parts of the world, including Western Europe, the Middle East, India and the Far East," says Skwarko.
Grad has so far confirmed just one chemical industry IPO still on the horizon for this year - that of nitrogen fertilizer, plastics and oxo alcohols producer Zaklady Azotowe Kedzierzyn (ZAK).
Asked about ZAK's prospects of going public, Skwarko says Nafta Polska is "testing the capital markets on whether any IPO is possible and, if the answer is positive, we may consider going with ZAK on to the public market prior to privatisation."
Zaleska notes that ZAK plans to raise zlotych (Zl) 500m ($133m, €103m) from selling 43% of its shares. This is unlikely to happen, she says, given last year's unsuccessful IPO of fertilizer, caprolactam (capro) and polymer producer Zaklady Azotowe Tarnow (ZAT), the first and only IPO in the sell-off so far.
"ZAT's share price has lost 68% since then, and the current low valuation of chemical stocks would imply a mere Zl300m valuation of ZAK as a whole," calculates Zaleska.
ZAT, she adds, is a good example of a missed opportunity. Back in 2006, Germany's Petro Carbo Chem (PCC) was ready to pay Zl366m for an 80% stake, but the Law and Justice party (PiS) government judged that the price was too low.
"We doubt the current Civic Platform party [PO] government would accept an even lower price, but will it find an investor ready to pay more if this implies a more than 90% premium on the current share price?"
ZAK and ZAT feature in the proposed privatization centerpiece, the Polish Chemical Consortium (PKCh), a special-purpose vehicle formed by the two companies with the largest Polish chemical producer, Ciech. PKCh is negotiating with state giant PKN Orlen to acquire polyvinyl chloride (PVC) and nitrogen fertilizer subsidiary Anwil. Together, the four companies had 2007 revenues of Zl9.1bn.
Orlen is following the government recommendation that it move out of chemicals and concentrate on refining, petrochemicals and reducing its Russian oil dependency. But, say analysts, it is widely known that Orlen and PKCh may differ by as much as Zl1bn in their valuation of Anwil, a company that with Czech PVC subsidiary Spolana has an aggregate PVC capacity of 435,000 tonnes/year, the largest in Central and Eastern Europe. "A year ago, an asking price of Zl2bn was quite possible, now maybe Zl1bn is more probable," remarks Kliszcz. "We could be a few years from getting back to two billion."
If PKCh fails to land Anwil, the consortium could still be offered to a strategic investor, says Skwarko. The treasury, meanwhile, takes the view that more entities than only PKCh would come forward for Anwil.
"The management board of Orlen will have to select the successful buyer. I do not know whether PKCh will be the winner," says treasury spokesman Maciej Wewior.
Asked about the chances of acquiring Anwil, Ciech spokesman Krzysztof Grad says it is "too early to talk about it."
He is similarly noncommittal when quizzed on whether the future might see Polish firms moving more and more production abroad for cheaper feedstock, energy and labor costs. "We live in a world of global business, so it cannot be excluded," says Grad.
Ciech has branched out extensively into Romania and Germany, with acquisitions that have confirmed it as Europe's second-largest soda ash producer, while ZAT is in talks to invest in an 80,000 tonne/year polyoxymethylene (POM) plant in the Middle East. Grad's recommendation for the second main plank of the privatization is that the largest Polish nitrogen fertilizer producer and capro and melamine maker Zaklady Azotowe Pulawy (ZAP) should consider teaming up with the second-largest fertilizer firm and titanium dioxide producer Zaklady Chemiczne Police (ZChP) to find a strategic owner. Their combined 2007 revenues were Zl4.3bn.
Hubert Kamola, ZAP's chemical division managing director, reacts to this suggestion by saying: "It would bring no extra value business cooperation alone brings the synergies." In an emailed comment on a potential combined sale of ZAP and ZChP, Skwarko wrote: "A trade sale of ZAP and ZChP is not envisaged for 2009. Initially, we thought it might be possible in 2010. We still hope it will happen but."
DOUBTS ARE SPREADING
Such doubt by now pervades the whole privatization, said Kliszcz. Hopes of distinct progress had risen, he notes, when late in 2008, Grad and Polish Prime Minister Donald Tusk prioritized the promotion of chemical company sell-offs, while leading business delegations on visits to countries in the Arabian Gulf.
Officials hope some that potential Western investors sidelined by the financial crisis can be replaced with Middle Eastern buyers, such as sovereign wealth funds (SWFs).
"Now it's realized that these investors, including SWFs, have also been affected by the crisis," said Kliszcz. "There's no significant signal that anybody is so keen and nothing definite yet about SABIC Innovative Plastics [the Saudi Arabian company that treasury sources say has expressed initial interest in purchasing a PKCh stake]."
Those steering the privatization should perhaps consider a change of tack, advises Kliszcz. "At the moment they are trying to sell unrestructured companies, many of which are overstaffed. Why not spend the next years completing the often very complicated restructuring themselves? They could then invite buyers to acquire already consolidated companies at a point when the economic situation, and acquisition prices may have improved."
REASONS FOR MERGING
Rationale for combining Anwil, Ciech, Kedzierzyn (ZAK) and Tarnow (ZAT): merged company would be
No. 1 on home market for mineral fertilizers
No. 1 on home market for pesticides
No. 2 on home market,
No. 9 on global market for capro and polyamide
No. 1 on home market for oxo alcohols and plasticizers
No. 2 on European market for soda and salt
No. 1 on home market for toluene di-isocyanate (TDI)
No. 1 on home market for epichlorohydrin (ECH)
No. 1 on home market for epoxy resins and polyester
No. 1 on home market PVC
No. 4 on home market for polyurethanes (PUs)
SOURCE: NAFTA POLSKA
IT WAS late spring 2008 when Poland's treasury minister, Aleksander Grad, pledged a full revival of the sell-off process that had stalled two years previously under the former government.
Grad had pledged rapid progress as officials strived to privatize the state's remaining holdings in 19 chemical and fertilizer producers within two to three years. But the minister, of course, hadn't spotted the severity of the global economic black clouds gathering overhead.
By now, Nafta Polska, the state agency that oversees chemical industry privatizations, offers a far more sober perspective on the course the sell-offs are likely to take. Analysts weighing the latest comments from the agency are convinced that a possible postponement of the process is on the cards.
"The treasury let fat years slip by due to political reasons and now, when the sector's momentum is worsening and listed chemical stocks have collapsed, we doubt the treasury could find the investors ready to pay it as much as it would have received back in 2006," says Barbara Zaleska, a Warsaw-based chemical industry analyst at investment bank Wood & Company.
"In our opinion, the privatization should be reassessed due to tough economic conditions in the sector," she adds.
Kamil Kliszcz, an oil, gas and chemical industries analyst at Poland's BRE Bank, concurs. "The right time for this privatization was missed," he says.
"It is now doubtful it can succeed in the remaining few years of the lifetime of this government. The Warsaw stock market lost a third of its value in the months after the financial crisis began, and it is difficult to sell companies in such an environment. Initial public offerings [IPOs] are not likely to achieve prices acceptable to the government."
Wieslaw Skwarko, deputy CEO of Nafta Polska, said a final decision on launching the sale of the biggest Polish chemical companies that feature in the privatization would be taken by April, based on the advice of a leading merchant bank appointed as a financial adviser.
"The whole situation requires a reassessment of our approach. Timing may also be modified. However, we are strongly motivated to complete the privatization as quickly as possibly, but not for any price. We are in touch with potential investors from different parts of the world, including Western Europe, the Middle East, India and the Far East," says Skwarko.
Grad has so far confirmed just one chemical industry IPO still on the horizon for this year - that of nitrogen fertilizer, plastics and oxo alcohols producer Zaklady Azotowe Kedzierzyn (ZAK).
Asked about ZAK's prospects of going public, Skwarko says Nafta Polska is "testing the capital markets on whether any IPO is possible and, if the answer is positive, we may consider going with ZAK on to the public market prior to privatisation."
Zaleska notes that ZAK plans to raise zlotych (Zl) 500m ($133m, €103m) from selling 43% of its shares. This is unlikely to happen, she says, given last year's unsuccessful IPO of fertilizer, caprolactam (capro) and polymer producer Zaklady Azotowe Tarnow (ZAT), the first and only IPO in the sell-off so far.
"ZAT's share price has lost 68% since then, and the current low valuation of chemical stocks would imply a mere Zl300m valuation of ZAK as a whole," calculates Zaleska.
ZAT, she adds, is a good example of a missed opportunity. Back in 2006, Germany's Petro Carbo Chem (PCC) was ready to pay Zl366m for an 80% stake, but the Law and Justice party (PiS) government judged that the price was too low.
"We doubt the current Civic Platform party [PO] government would accept an even lower price, but will it find an investor ready to pay more if this implies a more than 90% premium on the current share price?"
ZAK and ZAT feature in the proposed privatization centerpiece, the Polish Chemical Consortium (PKCh), a special-purpose vehicle formed by the two companies with the largest Polish chemical producer, Ciech. PKCh is negotiating with state giant PKN Orlen to acquire polyvinyl chloride (PVC) and nitrogen fertilizer subsidiary Anwil. Together, the four companies had 2007 revenues of Zl9.1bn.
Orlen is following the government recommendation that it move out of chemicals and concentrate on refining, petrochemicals and reducing its Russian oil dependency. But, say analysts, it is widely known that Orlen and PKCh may differ by as much as Zl1bn in their valuation of Anwil, a company that with Czech PVC subsidiary Spolana has an aggregate PVC capacity of 435,000 tonnes/year, the largest in Central and Eastern Europe. "A year ago, an asking price of Zl2bn was quite possible, now maybe Zl1bn is more probable," remarks Kliszcz. "We could be a few years from getting back to two billion."
If PKCh fails to land Anwil, the consortium could still be offered to a strategic investor, says Skwarko. The treasury, meanwhile, takes the view that more entities than only PKCh would come forward for Anwil.
"The management board of Orlen will have to select the successful buyer. I do not know whether PKCh will be the winner," says treasury spokesman Maciej Wewior.
Asked about the chances of acquiring Anwil, Ciech spokesman Krzysztof Grad says it is "too early to talk about it."
He is similarly noncommittal when quizzed on whether the future might see Polish firms moving more and more production abroad for cheaper feedstock, energy and labor costs. "We live in a world of global business, so it cannot be excluded," says Grad.
Ciech has branched out extensively into Romania and Germany, with acquisitions that have confirmed it as Europe's second-largest soda ash producer, while ZAT is in talks to invest in an 80,000 tonne/year polyoxymethylene (POM) plant in the Middle East. Grad's recommendation for the second main plank of the privatization is that the largest Polish nitrogen fertilizer producer and capro and melamine maker Zaklady Azotowe Pulawy (ZAP) should consider teaming up with the second-largest fertilizer firm and titanium dioxide producer Zaklady Chemiczne Police (ZChP) to find a strategic owner. Their combined 2007 revenues were Zl4.3bn.
Hubert Kamola, ZAP's chemical division managing director, reacts to this suggestion by saying: "It would bring no extra value business cooperation alone brings the synergies." In an emailed comment on a potential combined sale of ZAP and ZChP, Skwarko wrote: "A trade sale of ZAP and ZChP is not envisaged for 2009. Initially, we thought it might be possible in 2010. We still hope it will happen but."
DOUBTS ARE SPREADING
Such doubt by now pervades the whole privatization, said Kliszcz. Hopes of distinct progress had risen, he notes, when late in 2008, Grad and Polish Prime Minister Donald Tusk prioritized the promotion of chemical company sell-offs, while leading business delegations on visits to countries in the Arabian Gulf.
Officials hope some that potential Western investors sidelined by the financial crisis can be replaced with Middle Eastern buyers, such as sovereign wealth funds (SWFs).
"Now it's realized that these investors, including SWFs, have also been affected by the crisis," said Kliszcz. "There's no significant signal that anybody is so keen and nothing definite yet about SABIC Innovative Plastics [the Saudi Arabian company that treasury sources say has expressed initial interest in purchasing a PKCh stake]."
Those steering the privatization should perhaps consider a change of tack, advises Kliszcz. "At the moment they are trying to sell unrestructured companies, many of which are overstaffed. Why not spend the next years completing the often very complicated restructuring themselves? They could then invite buyers to acquire already consolidated companies at a point when the economic situation, and acquisition prices may have improved."
REASONS FOR MERGING
Rationale for combining Anwil, Ciech, Kedzierzyn (ZAK) and Tarnow (ZAT): merged company would be
No. 1 on home market for mineral fertilizers
No. 1 on home market for pesticides
No. 2 on home market,
No. 9 on global market for capro and polyamide
No. 1 on home market for oxo alcohols and plasticizers
No. 2 on European market for soda and salt
No. 1 on home market for toluene di-isocyanate (TDI)
No. 1 on home market for epichlorohydrin (ECH)
No. 1 on home market for epoxy resins and polyester
No. 1 on home market PVC
No. 4 on home market for polyurethanes (PUs)
SOURCE: NAFTA POLSKA
Quoted from : www.ICIS.com
