Polish press reports that the Ministry of Treasury and the Ministry of Economy are working on a plan to gain full control of the country’s upstream assets, arguing that these assets have strategic importance. Puls Biznesu also reports an Economy Ministry official as saying that once the state maintains control of PGNiG’s upstream assets and its 48% stake in EuroPolGaz, the green light for further privatisation will be given.
Despite the lack of any specification on how the government would like to execute its idea, the news definitely imposes a new risk factor for minority shareholders in PGNiG. The E&P business of PGNiG (mostly due to unregulated crude oil production/sales) contributes some 40% of its profits. If removed, the company would become a highly regulated and therefore fairly risky utility company, under continuous threat of further splits. (Unbundling of GDCs cannot be ruled out as EU pushes Poland hard to liberalize its natural gas market.) Moreover, the price at which the government would buy back E&P assets of PGNiG, is also a question as market valuation might differ from that of the government's.
Until we have more colour on the plan, we are maintaining our Hold recommendation on the stock with our target price of PLN 3.8.