The Slovenia Times

Telekom Sale Over as Cinven Backs Out


The decision, reported Tuesday by the Slovenian Sovereign Holding (SSH), effectively ends the biggest and most politically controversial privatisation procedure in recent years, which was seen as a litmus test of the government's commitment to privatisation.

In a letter received on Monday, Cinven said, according to the SSH, that measures by the Agency for Communication Networks and Services (AKOS) indicated the regulatory environment would not be favourable for investments.

It also noted that changes to EU roaming regulations would have an adverse effect on Telekom's bottom line, while the Slovenian business environment overall was very uncertain, and the political situation was complex.

These are the main reasons why Cinven believes it cannot realise its plans in the given time horizon.

The decision is not unexpected considering vocal opposition by many stakeholders to the privatisation and tensions between Cinven and the SSH in recent months: Cinven attempted to drive down the price, with the SSH repeatedly refusing to accept its additional conditions.

The reactions to the Cinven move reflect deep political divisions about privatisation in general and the sale of the telecoms incumbent in particular, even in the government ranks.

Long-time opponents of privatisation, in particular the coalition Social Democrats (SD) and opposition United Left (ZL), hailed the news and urged the government to shelve the privatisation plan.

Supporters of privatisation want a renewed attempt. The opposition New Slovenia (NSi) for example said it expected the SSH to "immediately" launch a new privatisation round, as the company's value will continue to drop the longer the privatisation process is deferred.

The office of Prime Minister Miro Cerar refused to comment on the news and deferred to the SSH, with the ruling Modern Centre Party (SMC) likewise pointing out that the management of equity stakes was the purview of the SSH.

It remains unclear what steps the SSH will take next, or whether a new attempt will be made any time soon to privatise the company given that this was the third unsuccessful privatisation attempt in the past 15 years.

All three have been mired in political turmoil: the first tentative attempt at privatisation was halted in 2001 due to unfavourable circumstances on the telecommunications market, the second one came close to fruition in 2008 but was ultimately doomed by coalition in-fighting in the last minute.

The SSH said it would manage the stake in Telekom in accordance with its designation as a portfolio investment.

"As an active and demanding manager of state assets, the SSH will make sure that best corporate governance practices are carried out at Telekom Slovenije," the SSH's statement reads.

The recently adopted strategy for the management of state assets determines that "alternative scenarios" will be examined in the event the privatisation procedure fails; an earlier draft of the strategy mentioned listing on a foreign stock exchange as a possible alternative to outright privatisation.

The next steps could also be affected by Telekom Slovenije's decision to enter the bidding for Telekom Srbija, a deal estimated at EUR 2-2.8bn.

As the Dnevnik newspaper reported today, Telekom Slovenije does not have a sufficient war chest to take over the Serbian telco and could attempt to finance the transaction with a capital raising that would reduce the state's ownership stake, or by partnering with financial funds.

Telekom Slovenije said it would continue to pursue its strategy notwithstanding the outcome of the privatisation procedure, focusing on the integration of the recently acquired virtual mobile operator Debitel and consolidation in Macedonia.

"We will continue to direct our efforts in strengthening the market position across all segments", the company said in a written statement.

Telekom Slovenije reported group earnings before interest, taxes, depreciation, and amortization (EBITDA) of EUR 104.4m for the first half of the year, 7% above plans. It will disclose full half-year results at the end of August.

The company currently has a market capitalisation of EUR 650m and trades at EUR 94 per share. The Cinven offer valued it at about a billion euros in the best case scenario.

Financial analysts believe the failed privatisation attempt will not lead to a major drop in the share price, merely a slight correction given that Telekom has for years been generous with dividends and appears to be on track to improve its performance.


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