The Cabinet yesterday approved a broad strategy for selling most of its 68% stake in CEZ. The Cabinet approved that CEZ be sold to a single investor together with the government’s 50% stakes in six regional distributors. The Cabinet still has not decided whether to sell its stake in one or two tranches, but it wants to keep the 3% stake required for calling a shareholder meeting. The timing of the sale is still to be announced, perhaps at a press conference scheduled for 11 am C.E.T. (10 am London time) today.
The five criteria to be used in privatization are competitiveness and stability in the power sector, market liberalization, “optimal” (?) prices for end customers, maximum privatization revenues and minimum impact on employment.,p>
The government said that the decision to sell a CEZ stake together with the stakes in distributors to a single investor is motivated by the effort to maximize privatization revenues. While selling the combined stakes may attract a premium, the overall impact of the strategy on privatization revenues need not be that unambiguous, in our view. The government may find that combining the generation, transmission and distribution business may reduce the number of potential bidders to just a few big names such as Electricite de France or National Power, potentially reducing the competitiveness of the sell-off process.
In spite of these considerations, the market is more likely than not to appreciate the government decision, since it does not appear to be detrimental to CEZ shareholders’ value, and represents the first tangible step on way to the long-awaited privatization of CEZ.
The government decision will nonetheless be controversial in other ways; among others, it raises the question of how competitive the Czech power market will be after such privatization. Also, foreign utilities owning sizeable stakes in the individual distributors will likely not be excited by the idea of the distributors being lumped together with CEZ.
Local press reported today that, apart from EdF, also RWE and E.ON of Germany and AES of the U.S. may be interested in CEZ privatization.
We keep our short-term and long-term buy recommendations for CEZ.
(Ondřej Daťka)