IFR-Bankers worry over $3 bln in Polish sell-offs

By Abhinav Ramnarayan

LONDON, Jan 27 (IFR) - ECM bankers hired to arrange Polish privatisation transactions totalling at least 10 billion zlotys ($3.1 billion) are suddenly terrified that the mandates are set to be torn up.

A new Polish Treasury team that was appointed in November recently told the banks handling a 15% sell-down in energy utility Enea, set to raise 1.22 billion zlotys, that their appointment is no longer valid and that it will be reopening the mandate process.

The move was a bitter blow as the deal was almost launched in December 2011. Citigroup, Credit Suisse, Espirito Santo, ING, Ipopema, PKO, UniCredit were working on the transaction.

Treasury officials did not give the banks specific reasons that the Enea mandate was cancelled and it has left bankers hired for other deals worried that their deals will also be put up for grabs. A Treasury spokesperson declined to comment, but said there would be an update on February 7.

"We hope that they will retain mandates on the upcoming privatisations, but we will have to wait and see what happens," said one banker appointed by the previous regime for an upcoming privatisation deal.

The changes result from the departures of Treasury minister Aleksander Grad and undersecretary to the Treasury Ministry Krzysztof Walenczak, who effectively ran privatisations. They have been replaced by Mikolaj Budzanowski as Treasury Minister and former UniCredit banker Pawel Tamborski as undersecretary.

For the past two years, the Polish government has been the bulwark of European ECM. In that period it has raised 27.54 billion zlotys through privatisations via the stock market, providing a steady stream of billion dollar deals - and accompanying fees - for otherwise deal-starved ECM bankers.

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While losing mandated deals is always painful for the banks involved, the news will be particularly hard to take because banks have had to make significant investment in order to win the work in the first place.

Under the previous Treasury regime, banks needed a local office and Polish staff in order to even qualify for ECM work. Several banks, including JP Morgan, Credit Suisse and UBS, followed orders and made the required investment.

Speaking to IFR last year, then undersecretary to the Treasury Walenczak praised Credit Suisse in particular for expanding in Warsaw. In the months that followed the Swiss bank was awarded several privatisation mandates.

By contrast, Bank of America Merrill Lynch decided the investments could not be justified, and missed out on the follow-on sale of Tauron shares, despite being a bookrunner on the IPO. The local office criterion was introduced between the IPO and follow-on.

In August BofA Merrill changed tack and hired a former undersecretary for the Polish State Treasury in Warsaw.

One regional investment banking head at a bulge bracket bank believes that the investment in Polish capital markets capabilities his firm made could well pay off on its own, but acknowledged that the decision to expand was taken mostly in order to win privatisation contracts.

Even without this additional investment, banks can hardly afford to miss out on deals at a time when primary deal flow is so weak.

At least two privatisation IPOs are scheduled for the second quarter of the year. Citigroup and UBS currently hold the mandate for the flotation of real estate holding Grupa PHN and Credit Suisse and JP Morgan are bookrunners on electricity distributor Zespol Elektrowni PAK.

Bankers are hoping that Grupa PHN in particular will arouse investors' interest. The company is a consolidated fund of government-owned land acquired during the communist era, and the government is keen to disburse those assets. One banker on the deal expects it to act as a proxy for the Polish economy at time when the market is looking for steady investments outside of eurozone.

Bankers mandated on deals have a clear self-interest in the Treasury sticking to its previous commitments, but they also point out that markets are likely to be receptive to new issues and there is no knowing how long that will last.

The IPO of utility Energa is also on the cards. Energa has assets similar in size to Enea, and is expected to be valued at roughly 2 billion euros, according to one banker operating in the region. A trade sale was pursued but failed to find a buyer.

Apart from this, there are a string of accelerated deals lined up to continue the privatisation process, including those of insurer PZU and electricity producer PGE. The government earlier cancelled the marketed follow-on of Poland's largest bank PKO, with bankers expecting sales to instead be completed on an accelerated basis.