The Initial Public Offering, to be the largest such transaction in Lithuanian history and the largest in the Baltics, is star of an international road show and has received significant interest from foreign investors and Lithuanians alike. People in Lithuania are queuing up in Lithuanian brokerages and banks to buy shares. On June 5, ELTA reported that from 40 to 60 people per day went to Vilniaus Bankas to fill out share applications.
The IPO is also attracting a fair share of negative attention. Critics complain about low shares and are wondering why so few shares will be for sale on the National Stock Exchange of Lithuania. To make matters more interesting, the government has suggested postponing the IPO for better market conditions.
The state is selling a 35 percent stake in Lietuvos Telekomas as shares and global depository receipts on the London Securities Exchange and the National Stock Exchange of Lithuania. The stock should be floated on June 12. Price estimates for the stocks fall between 3.00 litas and 3.80 litas ($0.75 to $0.95) per share with the final price to be set shortly before the stock float. At those prices, the offering would raise from 865 million litas to 1.085 billion litas.
The IPO received approval from the European Bank for Reconstruction and Development, which said it would buy approximately one-sixth of the total value of shares, spending up to $50 million.
The eventual EBRD investment and shareholding in the company will depend on the demand for the issue and final IPO price of LT shares, expected to be set on June 12, an EBRD statement said.
The EBRD's move, said Stefan Kosciuszko of British public relations firm Gavin Anderson representing Lietuvos Telekomas, "is based on great confidence in the country."
However, critics of government economic policy have pointed out possible flaws in the deal. Margarita Starkeviciute, a professor of economics at the Vilnius University school of international business, harshly criticized the advisers for the IPO, the German/British investment bank Dresdner Kleinwort Benson and Austrian CAIB Investmentbank.
Those two concerns, Starkeviciute claims, sent a group of less-experienced consultants who lacked knowledge about Lithuania.
"They did not inform our public about the technology and telecom sector development, which they had to do," she said.
She also blamed the advisors for setting up the deal as a private placement and not a public offering. However, say proponents of the IPO, this stock sale can be arranged only as a private placement as Lithuania's small, emerging stock market is not conducive to a typical public offering.
Starkeviciute also cited poor timing of the IPO and blamed the advisors for setting too low a share price, for "lower than for what they evaluated the company themselves, and lower than the evaluation by the EBRD."
The Lithuanian Free Market Institute is also disputing the price range.
"The existing maximum price does not allow investors to pay a larger price even if they would like to. Consequently, there remains a possibility for the state not to receive maximum price," said Andrius Bogdanovicius, an expert with the institute.
Aidas Golubinskas, director of the Suprema brokerage, one of the two institutional investors taking part in the IPO, thinks the estimates are right on.
"At first pricing was something that was determined by feedback received from our investors. Suprema's relation was almost 3.27 to 3.8 - almost our range - so we can not complain about that," he said.
The advisers, Starkeviciute maintains, purposely over-subscribed the issue as a sort of self-promotion.
"Over-subscription of an issue is like an indicator for an advisor. It means that you raised a lot of interest. In fact, they didn't raise interest, they just lowered the price - this was the easiest way," she added.
That there may have been some key personnel shortages in the advisors' camp was addressed by Rimantas Butkus, a senior officer with the Lithuanian State Property Fund. Dresdner Kleinwort recently experienced an unsuccessful merger attempt with Germany's Deutschebank. As a result, Butkus reports, some key employees who have headed the Telekomas deal left Dresdner Bank.
"This is a non issue," Kosciuszko declared. "A lot of the preparatory work was already done by those people. The research report was already on the market when they resigned. There's no ground in my view for any criticism. I would ask, who is leveling the criticism and that's those who have never been involved with a global offer. And that's an unequivocal fact."
Another complaint: Too many shares are being sold in London while not enough will be sold in Vilnius.
"Privatization through avoiding the stock exchange makes it more difficult for investors to participate in privatization," said Bogdanovicius.
Hogwash, said Kosciuszko.
"You know what daily turnover is of NSEL? You have a very, very quiet domestic stock market. How then are you expecting to sell a billion litas in purely a domestic market when the turnover on some days is 100,000 litas?" he asked.
This scheme, he explained, is standard practice for global offerings, particularly in a privatization in an emerging economy.
"In order to assist liquidity, GDRs and shares are issued so that local investors can buy the shares on the local exchange and that international investors have greater liquidity in trading GDRs. There is not a billion litas of demand on the local market," Kosciuszko said.
Still, Rimvydas Valatka, a columnist for the daily Lietuvos Rytas, said on radio that Lithuanians would snatch up as many Telekomas shares as given. Once they got the taste of shares, their appetite for them would increase.
The Lithuanian government raised some brows when it announced that it was considering postponing the IPO to wait for better market conditions.
"The government is closely watching the situation on the market. In the government's opinion, the privatization adviser still may work intensively to ensure the best conditions for the sale of shares," said a statement from the government's press office.
In an appearance on the British TV channel CNBC, Lithuanian Finance Minister Vytautas Dudenas allayed some but not all fears of postponement.
"It depends on the market. Any IPO can be shut down and I hope this is not the case for our offering," Dudenas said. "The decision will have to be made whether we're getting a fair price."
Despite all their criticisms, the Lithuanian Free Market Institute and Starkeviciute insist that the IPO must go on.
"There must not be any talk about postponing the privatization," said Bogdanovicius. "What has to be done is that the mistakes made should not be repeated in the future. State-owned shares should be privatized through stock exchanges, applying the same rules to all investors."
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