Slovakia May Raise $1.1 Billion in Deutsche Telekom Unit IPO

Slovakia may raise as much as 1 billion euros ($1.1 billion) in the sale of its 49 percent stake in Slovak Telekom AS, the country’s largest phone operator majority owned by Deutsche Telekom AG.

The state’s 42.3 million shares will be offered on the Bratislava Stock Exchange at between 17.7 euros and 23.6 euros apiece, according to a company statement on Tuesday. Deutsche Telekom will keep the 51 percent it bought in 2000. The indicative price range values the company at between 1.5 billion euros and 2 billion euros. The upper bracket of the IPO offer matches the Finance Ministry’s 2015 budget plan.

The government, which in the past criticized its German partner for a reluctance to distribute the Slovak unit’s profits, may use the proceeds to cut the state debt. The plan also includes offering global depository receipts at the London Stock Exchange.

“For us, dividends were a priority, dividends have not been paid in full for a long time,” Economy Minister Pavol Pavlis told journalists in Bratislava. “The shareholder agreement after the privatization doesn’t give us any rights. Negotiations with the majority shareholder led to our decision to sell the stake.”

Dividend Guidance

The company has set a dividend guidance of between 50 percent and 80 percent of net income and received a positive initial feedback from investors, said Milos Jesko from the Bratislava branch of Citigroup Inc., which is a joint global coordinator and bookrunner together with JPMorgan Chase & Co. Jesko said he expected “solid” interest in the stock.

Erste Group Bank AG and Wood & Co., a Prague-based brokerage, act as joint lead managers, the company said.

The offer is scheduled to close on May 6 with pricing and allocations announced a day later, the company said. Local retail investors will be offered a 5 percent discount for orders of up to 423 shares. The government of the post-communist euro-area member also expects the share sale to help increase activity on the Bratislava Stock Exchange, where bond trading represents more than 99 percent of turnover.

Trading is expected to start May 12 and the stock will also be listed in Prague. The stock exchange in the Czech capital said the stock may be included in its PX index with a weighting of between 6 percent and 9 percent.

Earnings Decline

Slovak Telekom’s earnings before interest, tax, depreciation and amortization dropped 7.8 percent last year to 310.7 million euros as revenue declined 5.1 percent to 767.6 million euros. Consolidated net income fell 12 percent to 43.6 million euros, or 50 euro cents per share.

“The value for future minority investors is mainly in a strong balance sheet, the company has no debt and has a decent cash surplus,” Patria Finance AS, a Prague-based brokerage said in a note. “It generates solid cash-flow and could pay interesting dividends.”

Patria estimates the value of the state’s stake at between 700 million euros and 750 million.

While the budget includes the sale proceeds as a source for paying state debt, Pavlis said he “will push” for using the funds to boost the government’s holdings in Slovenske Elektrarne. Enel SpA is selling its 66 percent stake in Slovakia’s largest electricity producer.

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