Early yesterday, Cabinet announced guarantees of up to CZK 20 bil. for KB’s substandard, doubtful and loss loans. The guarantee scheme is constructed so that KB still has an incentive to minimize the claim towards the state. KB’s claim on the guarantees will be settled as of December 31, 2003. The short-term immediate impact will therefore be indirect, through lower-than-otherwise provisioning, and analysts’ assessments will depend on how much of this they had projected. We had assumed a limited impact on provisioning; if we decide to reduce this year’s provisioning estimate, it will not be a significant reduction. Certainly one positive aspect of the Cabinet decision was the timing itself; had the decision been postponed until next year, parliamentary approval—a new budgetary requirement on state guarantees—would have meant a delay of 2-3 months at least. Moreover, because of the guarantees, the government will be able to sell KB at a higher book value multiple.
As for KB privatization, preliminary bids are expected by February, and a tender winner should be known by June 2001. Reuters yesterday quoted a government document as predicting the revenue from the sale of the 60% KB stake at CZK 35 bil.–45 bil. (including the guarantees). This implies a range of CZK 1,530-1,970 per share. We find this unrealistic, and we pay little attention to these figures. Neither did the market yesterday.
The stock gained upon the news of the Cabinet decision briefly in the morning, but then spent most of the day in the red, as a result of profit taking (it had gained 5.5% on Monday, prior to the Cabinet decision).
Our recommendation remains to accumulate the (traditionally volatile) stock when the discount to our target price (CZK 955 per share) is attractive. We now see the stock’s short-term upside limited.
(Ondřej Daťka)