EBRD offers to bail out shipping privatization

RIGA - After the failure in April of the third attempt to privatize the state-owned Latvian Shipping Company, the European Bank for Reconstruction and Development has announced its readiness to help secure a deal.

Toby Moore, head of the EBRD's Latvia office, said there were a number of possible scenarios for its involvement. After, or at the same time as a controlling stake is sold, the EBRD could also buy a stake, he said. Alternatively, the EBRD could lend money toward the cost of renewing the aging fleet, prior to a sale. This debt could be converted into a stake in the company if the strategic investor so wished.

"We want to encourage investors to take a closer look and to increase the transparency of the deal in order to increase investors' trust," he said. "The shipping company's major problem is the age of its fleet. If the process of upgrading were started, it would make it more attractive."

Janis Naglis, head of the state's privatization agency, which currently administers the company, welcomed the offer. The company's cash reserves - currently $60 million - are insufficient to meet the cost of fleet renewal, he said.

"Either a very big investment program is needed or it is necessary to buy second-hand ships. For example to build just six tankers would cost a minimum of $200 million. It is pointless building one or two ships when 20 ships will have to be written off at the end of 2003. The EBRD's involvement would be very good. It would make the sell-off nonrever-sible."

A working group, comprising members of the parties which make up Latvia's ruling coalition, began drawing up recommendations to the cabinet on how to proceed on July 16. The council of the ruling coalition had earlier failed to approve the Ministry of Economy's proposals. "Unfortunately I am not in the working group," said Naglis.

Evita Timofejeva, spokeswoman for Economy Minister Aigars Kalvitis, said the minister hoped the working group would complete its work within two weeks.

The EBRD offer was being viewed positively, she said. Kalvitis favors selling a 51 percent stake to a private investor, rather than the 68 percent offered in April, she added.

"Last time potential investors said the price – $70 million – was too high, but the government still wants to offer the shares at 51 santims ($0.79) per share. So a 51 percent stake would cost less, but give the investor similar influence over the company's management."

Maris Manichinskis, head of financial markets at Hansabanka, commented that the EBRD's involvement may facilitate the sell-off although it may also slow it down. "The EBRD would add credibility to the process, although it tends not to be very fast. We certainly won't see the company privatized this year, but perhaps in six to nine months if the rules are right and conditions in the shipping market are OK.

"The government is not known for giving things away cheaply so there have to be good market conditions, which we can't predict this far ahead. For this reason it is important that the government has knowledgeable advisers who it listens to when setting a price."

At least 15 percent of the company is expected to be sold in a public offering at which shares would be exchanged for privatization certificates. Company employees and pensioners are also expected to receive shares, as is the national special pension budget.