The Cabinet may decide today on possible guarantees for KB. A Finance Ministry proposal reportedly offers several scenarios, which vary in the amount of guarantees. A figure of CZK 25 bil. in guarantees is perhaps the most frequently quoted by the press.
At the same time, the outcome is not certain, and uncertain is also whether any decision will be made at all. Finance Minister Pavel Mertlik said on Friday that the government “has the option to decide” and that the decision is an “open issue.” He also said that government guarantees would make the bank more attractive, but that they are not necessary for its further functioning and privatization. The four short-listed bidders for KB are reportedly willing to buy the bank with or without state guarantees. Goldman Sachs, the government's KB privatization adviser, recommends the guarantees.
A possible motive for the Cabinet to make a decision today is that postponing the issue of guarantees until early next year would then require the approval of Parliament (due to a change of budgetary rules as of January 1, 2001), implying a possible delay. In the event of a postponement today, such a prospect could be negatively perceived by the market (regardless of the reasonable probability that Parliament would likely back the guarantees).
We expect information from the Cabinet meeting possibly in the early afternoon, but most likely not before the end of trading today. In our projections and valuations, we have assumed very little immediate impact of the government’s pre-privatization help on KB’s equity, and we continue to hold that view. Our 12M target price is CZK 955 per share, and we do not change it for now.