On Wednesday, the Cabinet is scheduled to discuss the privatization of CEZ and Unipetrol. The Czech weekly magazine Euro reports today that the ministries of industry and finance have agreed to sell a 33.8% stake in CEZ (thus reducing the state’s stake to 34%) in combination with about 50% of combined stakes in six regional distributors to a single strategic investor. This investor should reportedly be a large European power company, ideally with experience in nuclear power. However, the Prague newspaper MFDnes reports today that the method proposed by the ministry of industry envisages the sale of a 57% stake in CEZ in combination with the state’s stakes in the distributors. Regardless of the merits of either strategy, the market could respond positively to the privatization reports.
However, according to our information (a Finance Ministry spokesman), the Finance Ministry is seeking to defer the issue of CEZ privatization to a later Cabinet meeting, because Finance Minister Pavel Mertlik will likely not be able to attend this Wednesday’s meeting. If confirmed, this could dampen market’s expectations. Moreover, it still is not that certain whether the two ministries are as united as suggested by the Euro article, and they may clash again when CEZ privatization is on the agenda, be it this week or next. In fact, the description of the Cabinet’s agenda on the government’s Web site indicates that each ministry is scheduled to submit its own proposal. In other words, there is still considerable ambiguity regarding the outcome of the Cabinet debate, and the scenarios reported above need not be conclusive.
Generally speaking, we see privatization news as a potentially very strong catalyst for CEZ stock, which has been stagnating for many weeks now and which we still consider undervalued. The stock could be volatile in the coming days or weeks, depending on whether the Cabinet debate on CEZ privatization is rescheduled and on the extent of agreement between the ministries of finance and industry. Eventually, however, any sign of tangible progress should help the stock.