Serbia May Cancel Telekom Srbija Sale, Turn to Bond Sales
March 28, 2011, 10:00 AM EDTBy Gordana Filipovic
(Updates with government decision to make statement tomorrow at 2 p.m. Belgrade time, in second paragraph.)
March 28 (Bloomberg) -- Serbia will probably cancel the sale of Telekom Srbija AD and turn to bond sales for its financing needs after a lone bid by Telekom Austria AG failed to match the government’s asking price.
A government commission is due to meet later in the afternoon and will announce a decision tomorrow at 2 p.m. on in Belgrade on whether the government should accept the Austrian offer of buying the 51 percent state stake for as much as 950 million euros in cash and 450 million euros in investments.
Prime Minister Mirko Cvetkovic, who is struggling to trim the budget deficit to live up to terms of its international bailout loan, said he won’t accept less than his demand for 1.4 billion euros ($2 billion) in cash. Serbian workers protested last week against the government’s price, saying it was too low, raising the prospect that accepting the offer may erode support before next year’s elections, analysts said.
“We can see that the price is too high for investors and too low for those who opposed the sale and who believe the price must be much higher,” said Goran Saravanja, the chief economist at Unicredit SpA’s Zagrebacka Banka unit. The government is suffering from “poor expectation management.”
Telekom Austria was the only one of seven companies registered for the sale to place an offer, making it harder for the government to stick to its price demands, analysts said.
The other prospective bidders were Deutsche Telekom AG, France Telecom SA, America Movil SAB, Orascom Telecom Holding SAE through Weather Investments SpA, VimpelCom Ltd. and Turkcell Iletisim Hizmetleri AS.
‘Very Disappointed’
“The Serbian government looks to be very disappointed by the conditional offer being much below the minimum price set,” Bernd Maurer, an analyst at Raiffeisen Centrobank in Vienna, wrote in a March 24 note to clients. “And given elections at the latest in the spring of next year, we see the likelihood increasing that the deal will fail.”
Still, Maurer said, the two companies would be a “good fit,” and would widen Telekom Austria’s “footprint on the Balkans.”
Should the government back down and accept the offer, Telekom Austria would gain access to almost all of Serbia’s landline network and about 60 percent of its mobile-phone market.
It’s already the third-biggest mobile-phone operator in Serbia, with its Vip Mobile, launched in 2007, with a market share of 14 percent, or 1.4 million customers, according to the telecommunication company’s website.
Balkan Holdings
Telekom Austria last year combined its domestic fixed-and mobile-phone units to reduce costs and bought two cable operators in Bulgaria in September. It is said to be the leading bidder to buy B.net Hrvatska d.o.o. in Croatia.
The Serbian government is trying to sell the company for the second time in more than a decade. It originally sold a 49 percent holding in 1997 to Hellenic Telecommunications Organization SA of Greece and Telecom Italia SpA.
It bought back the Italian stake in 2003, pushing its ownership back to 80 percent. The current 51 percent stake being offered includes Hellenic’s current 20 percent.
If the government commission rejects the bid today, the National Bank of Serbia’s forecast for foreign direct investment inflows in 2011 would drop by half to 1.4 billion euros and probably drive government borrowing costs higher, even after Standard & Poor’s upgraded the Balkan nation’s credit rating to BB from BB- on March 16, the first increase in five years.
‘Investors’ Perception’
“It may affect investors’ perceptions of Serbia and it’s possible that financing costs will rise,” said Dusko Vasiljevic of the Belgrade-based Ceves economic institute.
In a March 23 note, analysts at Hypo Alpe Adria Bank warned “government short-term debt will have to come at higher prices.”
The government has already been drafting plans for a Eurobond sale later this year should the sale fall through. Serbia has relied on a 3 billion-euro bailout loan from the IMF since mid-2009 to offset external liquidity pressures amid capital flight triggered by the global financial turmoil that hurt the country in late 2008.
--With assistance from Misha Savic in Belgrade and Zoe Schneeweiss in Vienna. Editors: James M. Gomez, Douglas Lytle
To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net
To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg
