A second bidder has emerged for the 75% stake being sold in Post and Telecommunications Kosovo (PTK), according to the Ministry of Economy. Tabled by a group that includes BT of the UK, the offer is twice the size of an earlier bid submitted by a Lebanese consortium and seems likely to win the approval of ministers, despite mounting opposition from workers' unions. Given the uphill financial, technical and political challenges incoming investors will face, BMI welcome s the inclusion of an experienced telecoms company such as BT but we note that PTK's transformation into a profitable competitive player will still be hard-won.
The BT-backed consortium has offered EUR227mn, a figure surpassing the EUR150mn already tabled by the only other contender, Lebanon's M1 International group. As the Kosovan government has previously indicated that its acceptance criteria are mainly geared towards the financial terms of bids, it seems likely that this new bid will be accepted. Other investors in the BT-led group are Germany's ACP Axos Capital and the US-based Najafi Companies group.
|PTK - Revenue Composition, 2011|
The government has made several attempts to privatise the inefficient and under-resourced utility since 2010. Workers' unions, opposition political parties and the government of Serbia have all undermined those previous efforts, citing unrealistic financial bids, a lack of prospective investors' technical expertise, graft and even threats on the part of the Serbian government to demand a large share of the profits from the sale (repayment for what it claims was the unlawful sequestration of Serbian state assets when Kosovo seceded from Serbia) . BMI expects similar efforts will be made to derail this latest sale, although we note that the Kosovan government seems more willing than before to ensure completion.
It is unclear whether the n ew investors will be allowed to separate the low-margin postal services business from the core telecommunications operations and whether it can close the unprofitable public payphones business in light of strong demand for mobile services. Reducing staffing levels would be another way of making PTK more profitable; the workers' unions are mainly concerned about job losses and, given that the unions still hold a considerable sway in domestic politics, BMI thinks the n ew investors will be challenged to justify staff cuts.
The fixed-line telephony and internet (mostly dial-up) businesses are under-utilised and suffering from competition engendered by alternative operators such as IPKO . These will require significant investment, particularly when considering the absence of broadband IP-based platforms necessary for the delivery of advanced value-added services . PTK's mobile business - Vala - is growing well but is also under pressure from new entrants.
Our main concern is that PTK is over-reliant on mobile services - 85% of revenues came from the mobile business in 2011 - and this is not sustainable without significant investment in ancillary fixed-line and broadband platforms. However, 3G services have yet to be licensed and PTK will need to compete with IPKO on that front in due course, so future investment will need to account for significant mobile network upgrades, too.
Besides the unions and the need to balance investment requirements, the new owners' most potent threat could be a political one. A change in government could see a retrospective reversal of the privatisation process - always a risk in newly liberalised frontier markets - while Serbia continues to threaten legal action regarding a privatisation process it still views as a breach of its historical ownership and investment rights.
It will, therefore, be a brave and dedicated investor that takes on the challenge of restructuring one of Europe's last remaining state postal and telecoms utilities.