Cabinet is due to meet today, and Finance Minister Pavel Mertlik is scheduled to report on the KB privatization progress. The minister’s report consists of three parts:
An updated privatization schedule that envisages the release of an information memorandum in mid-September, a deadline for the submission of binding bids by interested investors in December, and a final decision on the strategic partner in March of next year. The delay into next year has been earlier suggested by government officials and is expected by the market. The new timetable therefore does not represent any breaking news (though it is good to see a firm commitment and realistic schedule on the table).
However, and most relevantly, the information memorandum to be sent out in September will contain information on precisely what KB guarantees the state will provide to a buyer. If this proposal is approved today (we believe it will), it would be the most explicit statement by the government to date regarding guarantees, i.e., state assistance to KB. Although additional government aid to KB has been expected (on top of bailouts in 1999 and early 2000), we believe that such an explicit commitment could be well received by the market.
Also positive is that the government should specify the size of the guarantees as early as September, at a relatively early stage in the bidding process (the alternative was waiting until one-to-one direct negotiations with short-listed bidders later). The amount of future guarantees is not yet known, since the pre-privatization audit is still to be completed.
Today’s report by Mertlik will also specify the conditions for potential bidders (e.g., ability to pay for KB; credit rating no worse than that of the Czech Republic; experience in restructuring; strong commercial banking, etc.):
Finally, the report will include a retrospective description of this year’s bailout of KB, which is of little interest to the market.
Overall, Cabinet approval of the Finance Minister’s proposal today would be good news for KB, and we consider such approval likely. Cabinet meetings are typically followed by a press conference late in the afternoon (after 5 p.m. CET), but related news may appear throughout the day. Our KB recommendation is hold.
(Ondřej Daťka)