Poland’s New Plan to Build Flagship Chaebol Spooks Investors

(Bloomberg) -- Minority investors in Poland’s state-run companies fled on concerns that a surprise $753 million bid by the country’s top oil refiner to buy a power producer may herald more government efforts to build “cross-industry” national champions.

The risk is that some of the biggest companies listed in Warsaw -- the worst-performing primary equity index in the world on Friday -- are becoming more likely to be thrust into politically-motivated projects by their government-appointed executives. This could stoke new spending, curb profits and dividends.

Until Thursday’s announcement of PKN Orlen SA‘s bid for Energa SA, the idea of building national champions was mainly viewed as a consolidation play within industries, not the creation of new conglomerates. The government has in past years used state-owned banks and utilities to buy out foreign competitors and tighten its grip on the country’s $586 billion economy.

The Orlen-Energa deal “poses new risks for minority shareholders in other state-controlled utilities,” MBank SA analyst Kamil Kliszcz said. The state’s drive for building cross-industry behemoths may only be getting started, he said.

Investors voted with their feet on Friday, especially after State Assets Minister Jacek Sasin said that creating “multi-industry national champions” was in line with Polish government policy. The state runs a number of leading companies, including gas group PGNiG SA, PKO Bank Polski SA and utilities PGE SA and Enea SA.

Orlen dropped as much as 11% on Friday, touching a three-year low amid concerns it would be forced to help bankroll Energa’s controversial coal-fired power plant project. The refiner traded 5.9% lower in afternoon trade, while fellow state-run companies, such as PGNiG and PGE, dropped 4.5% and 3.1% respectively.

Warsaw’s benchmark WIG20 index dropped 1.2%, the biggest decline among about 90 primary equity gauges tracked by Bloomberg.

“Another surprising transfer of state assets confirms existing investor worries about the risk for minority shareholders in Polish state-controlled companies,” said Andras Szalkai, a fund manager at Raiffeisen Capital Management in Vienna.

Decades of Domination

Orlen’s valuation plummeted amid speculation it would be urged by the government to finance huge energy investments, including a 6 billion zloty ($1.6 billion) coal-plant in Ostroleka. In a conference call with analysts and investors on Friday, Orlen’s representatives sought to allay such fears -- saying that the fuel refiner was cool toward investments in coal energy and into nuclear power.

Still, Raiffeisen’s Szalkai said that Orlen’s decision “to move beyond oil and gas into green energy and offshore wind” was risky but may also make business sense.

Orlen, Poland’s biggest company by sales, last year announced plans to buy smaller state peer Grupa Lotos SA, a move hailed by Prime Minister Mateusz Morawiecki as the creation of a national champion capable of taking on international competitors following decades of domination by stronger and richer western companies.

Morawiecki told Bloomberg last year that he “dreamed” of being in the situation of South Korea, where chaebols -- large conglomerates like Samsung or LG -- dominate the business landscape.

So far, investors haven’t bought into the vision.

To contact the reporters on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net;Konrad Krasuski in Warsaw at kkrasuski@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net, ;Blaise Robinson at brobinson58@bloomberg.net, Piotr Bujnicki

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