Croatia Invests Hopes in Telecom Sale

An initial public offering of T-Hrvatski Telekom looks like a masterstroke by Croatia’s governing party, the Croatian Democratic Union.

The Croatian government’s decision to sell its sizeable minority stake in T-Hrvatski Telekom (T-HT) had already been described by political and business analysts as a masterstroke. So to fans of the sale, the government’s announcement earlier this week that it would unload 32.5 per cent of the company in an initial public offering, not just 23 per cent, makes it even better.

“Just about perfect,” says Miodrag Sajatovic, editor in chief of the business magazine Lider.

Coming six years since the formerly state-owned telecommunications company’s tender privatisation to Deutsche Telekom, this second wave sell-off of state-owned shares might have passed quietly, as many such sales do. Deutsche Telekom acquired its 51 per cent stake in 2001.

There is no suggestion of a change in ownership at this time, although some analysts predict Deutsche Telekom will increase its stake.

Yet the dynamics and timing of the sale appear expertly arranged to maximise the government’s political and financial capital in advance of parliamentary elections on November 25, analysts say.

If it works as predicted, the Croatian Democratic Union, the party at the helm of government since Croatia declared independence from the former Yugoslavia in 1990 – with the exception of a cathartic spell in opposition from 2000 to 2003 – stands to score big with two key voting constituencies.

The first of these is Croatia’s growing number of private individuals who have shifted large sums of savings into stocks, bonds and funds. Booming volumes on the Zagreb Stock Exchange parallel the broader rise of a private investment scene that in recent years has yielded new prominence for Zagreb as an investment hub in central and eastern Europe – still much smaller than Warsaw, Budapest and Prague, but increasingly noted alongside them.

Among individual investors and their institutional counterparts, interest in the T-HT sale is running high, partly on the strength of profits reaped in previous second-wave sales of this kind.

Ivo Sanader, the prime minister, promises a “good experience” for local investors, akin to that seen last year when the state sold a 15 per cent stake in INA, the state-owned oil company. Many buyers made quick money through that public tender, which preceded the listing last December of INA stock on exchanges in Zagreb and London, as the share price rose by 62 per cent within the first two months of trading.

Zeljko Kardum, spokesman for the Zagreb Stock Exchange, warns that buyers of T-HT stock should avoid basing expectations on the performance of any other company, such as INA. To do so, he says, is “not serious”.

Yet even before the government’s announcement this week boosting the volume of shares on offer, citing heavy public interest, anecdotal evidence pulled together by local media indicated surging demand for T-HT shares among individuals. In a bidding window that opened on September 17 and closes later today, every citizen was invited to bid for up to 155 shares, in a pre-set price spectrum from 245 to 320 Croatian Kune (33 to 43 Euro), a price set after consultations with around 60 institutional investors.

A second key constituency that stands to benefit with greater certainty is the country’s pensioners, whom the government owes a decade-old debt.

Ministers’ pledge to use proceeds from the sale to pay off that debt. Doing so will neutralise a core issue raised by the influential Croatian Party of Pensioners (HSU), a relatively new political force that entered parliament for the first time in 2003 having leached some retirees’ support from the HDZ. After those elections, the HSU then joined forces with the HDZ as a junior coalition partner in government.

Politically, this looks a remarkable feat, combining the interests of two traditionally politically rivalrous groups, the country’s pensioners and its upwardly mobile new investors. At the same time, the government has neutralised in advance the storm of political uproar that frequently occasions large-scale privatisation of state property.

“It is timed for two reasons: first to mend budget holes for the payment of arrears to pensioners and second as a manoeuvre transferring money into citizens’ pockets in exchange for support at the polls,” says David Genero, a political commentator.

Such manoeuvres have come in for heavy criticism in the past from opposition parties. Not this one.

“Opposition political parties do not dare loudly oppose the sales of state shares when the resulting income is intended for pensions. No one with the elections coming up would dare express resentment toward pensioners,” says Sajatovic.

In an added twist, the sale also receives approval from economists. For a government sometimes criticised in the past for non-transparency, maintaining cosy ties with industry and resisting certain market reforms– notably the proposed closure of loss-making shipyards – this is important.

“[The T-HT sale] is transparent. The whole thing is good,” says Goran Saravanja, chief economist at Zagrebacka Bank, a major Croatian bank owned by Italy’s UniCredit Group.

Despite all the praise, investors have no guarantee that their experience as T-HT shareholders will be profitable. Sceptics note that a golden age of global investment in telecommunications has recently past, as corporate results and the pace of innovation have tapered off since a highpoint in the late 1990s.

However, T-HT boasts a comfortable position in the Croatian market of 4 million, where it is the third largest company overall. In addition to its virtual monopoly on fixed line telephony, it owns the leading mobile operator, T-Mobile Hrvatska, and is the leading provider of Internet service. The company has lately posted rising profits, up 340 million Kune (45 million Euro) in the second quarter of 2007.

Following initial bidding, which closes to institutional investors on October 1, T-HT will be listed for trading on exchanges in Zagreb and London. (BIRN)