EY ROMANIA

 | 

MIHAELA MIHAI

  |  13.11.2013

One down, two to go

Even though the slowdowns and postponements of the privatizations in the transportation and cargo industry are not surprising anymore, events indicate that the process would take much longer than expected.

EY Romania

MIHAELA MIHAI

MIHAELA MIHAI

SENIOR CONSULTANT - TRANSACTION ADVISORY at EY ROMANIA

 

In the CSE picture, Romania is not the only country where privatizations incurred important delays. Fortunately, the Romanian Ministry of Transport signed the privatization contract for CFR Marfa with the Romanian railways operator, Grup Feroviar Roman (GFR), which keeps the door opened to the international lenders. 
 
 
ROMANIAN NATIONAL POST COMPANY AND TAROM, NOT READY FOR SALE 
Romanian National Post Company, the largest operator on the couriers market, got an unfavorable verdict from investors. There were no entities interested in acquiring the tender book and a new deadline for submitting the non-bidding offers was set for 30 June 2014. In the meantime, efforts are been made to increase the Company’s attractiveness by reducing the number of employees, rescheduling the debt to the State budget and requesting the European Commission to approve the conversion of a debt to the State budget of RON 242 million (EUR 55 million) to equity. 
 
 
The announced sale of 20% of Tarom shares was also postponed for when the flight airline operator becomes more attractive for investors. Tarom went through an extended conflict between CEO Christian Edouard Heinzmann and the Board of Directors, led by Dan Pascariu. As a result, the CEO’s mandate will end in November, three years earlier than agreed. Tarom managed though to improve its result, reporting a loss of RON 63 million (EUR 14.3 million) in the first half of 2013, down from loss of RON 120 million (EUR 27.3 million) in the same period in 2012. 
 
 
ANOTHER ATTEMPT TO SELL THE RAILWAY FREIGHT OPERATORS IN THE CSE 
Under European Union (EU) and International Monetary Fund (IMF) pressure, several privatizations of the railway freight operators in the CSE were expected to be finalized in 2013. Whereas Hungary went through this process five years ago, in 2013 we could still find on the sale list the state-owned railway freight operators from Bulgaria, Romania, Croatia or Greece. Privatization of this sector was also on the agenda of other countries in the region, like Slovakia. In practice, the road to privatization was long in some countries, being subject to the lack of interest from investors, political willingness or public resistance. 
 
 
In Bulgaria, the privatization of the state-owned freight railway carrier, BDZ, was cancelled by mid-year 2013, after four investors were expected to place bids. The new plan announced by the Bulgarian government for BDZ, which has been on the sale list for a couple of years, is to be restructured making use of a debt-to-equity swap by the end of 2014. Its major creditor will acquire assets of BGN 97 million (around EUR 49.6 million), which will reduce the debt of BDZ by the same amount. Afterwards, the privatization of BDZ is expected to be initiated again by mid-2015. 
 
 
Croatia accepted the bid of GFR, for 75% HZ Cargo stake, for a price of EUR 60 million. GFR also acquired 51% stake in the Romanian Railways Company's (CFR) Freight Division - CFR Marfa for EUR 202 million. The privatization of CFR Marfa was also one of the preconditions for a new EUR 4 billion Stand-By Arrangement with IMF and EU. Poland, considered to be a successful story in the CSE, is also going through the privatization of its rail freight operator, PKP Cargo. In 2011, the Polish government decided to sell 50% plus-one-share stake to a strategic buyer through the issuance of new shares and the sale of stake owned by Polish state. However in 2012, the privatization strategy changed in favor of a stock exchange sale, rather than of a specific investor, and currently awaits the Ministry of Transport's decision on it. 
 
 
Poland has taken an important step towards privatization at the end of August 2013, when PKP Cargo entered into an agreement with the labor unions in that concern. The sale value is expected to be placed at around PLN 2 billion (around EUR 470 million), and would be the largest IPO on Warsaw Stock Exchange in 2013. With a rolling stock more than twice the size of CFR Marfa (2,502 locomotives and 65,453 wagons), PKP Cargo revenue in 2012 exceeded PLN 54 billion (EUR 12.9 billion), while its net profit remained at PLN 267 million (EUR 63.8 million). 
 
 
ROAD FREIGHT CONTIUES TO DOMINATE THE SECTOR 
Road freight is expected to continue dominating the transport sector in Romania and according to BMI, accounts for 67.7% of the total freight in Romania in 2013. According to the same source, the sector is projected to record the strongest growth y-o-y out of road, rail and inland waterway in 2013, with road haulage volumes forecasted to expand by 2.4% to reach 190.5 million tones, in line with macroeconomic growth. By 2017, the road haulage volumes are forecasted to expand by 17.9%, reaching 219.2 million tones. On the other hand, EU’s policy regarding pollution should not be ignored and congestion in transport that is threatening the road’s share in the transport sector. The likeliest to benefit from this will be the rail freight, which is projected to account for 20.9% of the total freight carried in Romania in 2017, up from 15% in 2007.

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