Thursday, August 25, 2011

Privatisation pays...for some

JSW shares since debut. Source: stooq.pl
It makes sense to take part in privatisation in Poland. Some would even say it is a slam dunk investment. Or at least it is for some companies.

Let's take a look at the example of Sweden's utility Vattenfall, which is ironically state-owned itself. Polish privatisation, or rather the sell-off of assets in the Polish power sector, lured Vattenfall in 2000-2001 to buy significant stakes in two energy companies. It invested, restructured, built value, increased its stake.

In 2009, under pressure from the government, Vattenfall bought the state's remaining 25 percent stakes in the two companies for 1.3 billion zlotys. The purchase valued the entire venture at 5.2 billion zlotys, give or take.

So far so good. Fast forward to a few days ago. Vattenfall announces it sold the two Polish companies for 7.6 billion zlotys (45 percent above the 2009 valuation) to...Polish state-controlled companies Tauron and PGNiG.

In essence, Poland bought back what it had sold to Vattenfall giving the Swedes a 45 percent return on investment in the past two years AND called it a success! We basically paid a 2.4 billion zloty management fee to a Swedish state utility just because it knew what to do and we didn't. Talk about a deluge of profits.

Thus, privatisation indeed pays off. You can come here, invest, improve and then we will take the problem off your hands at a hefty premium.

But beware. If you take part in the privatisation of Polish companies listed on the Warsaw market, then you would not be even close to earning similar returns, not to mention if you were foolish enough to believe in the coal-miner JSW, as in the chart in the upper left corner. Fool's gold, indeed.

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