As expected the Cabinet survived the vote of non-confidence on Friday as the Communists abstained from voting. In reaction, several coalition party ministers (including from the Social Democrats – CSSD) resigned. However, the president has not confirmed the resignations yet. At the same time, Gross will ask Parliament for a vote of confidence after the appointment of new ministers upon request of the president. Should a new Cabinet (with new ministers) not succeed in a vote of confidence three times, early elections are automatically called. Even if the Cabinet succeeds in the vote of confidence, it will have to rely on the Communist Party’s support in passing new laws as the Cabinet lost its majority after the both coalition parties, the Christian Democrats (KDU) and US-DEU, left the Cabinet.
Cabinet might approve sale of Cesky Telecom on Wednesday As the Cabinet remained in office we expect the Cesky Telecom privatization to be completed without any delays. We expect the sale of the state’s 51% stake to Telefonica for CZK 82.6bn (i.e. CZK 502 / share) to be approved by the Cabinet at the regular meeting held on Wednesday, April 6. We see the only risk in the fact that the Communist Party does not support the sale. As Gross’s Cabinet now depends on the support of the Communist Party, the Communist Party may request the cancellation of the privatization in exchange for its support.
Should the privatization be approved the sale contract should be signed shortly after the second half of April and the transaction should be then approved by the European Commission. Reportedly Telefonica and the National Property Fund are counting on completing the transaction by the end of June. Once the shares are transferred, Telefonica has to call an obligatory buyout within 60 days.
According to a press report Telefonica is planning to finance the transaction by debt and consequently use dividends from Cesky Telecom and its own cash flow to repay it. The CT AGM on June 23 should decide on the dividend to be paid on 2004 profit. Under the approved dividend policy of paying up to 70% of the consolidated net profit the CT dividend could amount to CZK 12 / share. However, the company could pay as much as CZK 28 / share according to Czech Accounting Standards (CAS). As Telefonica plans to complete the acquisition by the end of June and to use dividend payments from CT to finance the transaction, we expect the dividend to be at the higher limit of the potential dividend range (CZK 12 – 28 / share).