In mid-September 2009, the Croatian Privatisation Fund (CPF) portfolio encompassed 783 companies (736 companies available for sale) with total equity capital of HRK 59.8 billion, out of
which HRK 16.5 billion is in state ownership. Although 86 companies were privatised last year (4th
quarter of 2008 and first three quarters of 2009) (3 companies by a sale through a public tender, 35 on the Zagreb Stock Exchange and 48 companies were deleted from the court register following a completion of bankruptcy or winding-up proceedings), the portfolio structure by the number of companies and ownership shares has remained almost unchanged compared to the previous year, so that CPF is a minority owner with up to 25% share in equity capital in 80% of the companies (627
companies), in another 72 companies the share ranges between 25% and 50%, whereas in 84 companies the state is still a majority owner with more than 50% share in capital.
In addition to the existing share portfolio structure, where companies facing operational difficulties are predominant and, as such, unattractive to investors, the global economic crisis also had a significant influence on the achieved privatisation dynamics, resulting in a decreased interest of potential investors in investments in the entire region. Consequently, regardless of a large number of invited public tenders (24 tenders were invited for sale of 15 companies, out of which 9 companies were from the CPF portfolio and the remaining 6 related to Croatian Railways subsidiaries), only three companies were privatised.
By inviting a tender (in early August) for privatisation of five shipyards and one subsidiary in majority state ownership, the activities started to resolve the issue of long-term sustainability of the shipbuilding sector which is, from the aspect of privatisation, the most complex and demanding sector that has remained in the CPF portfolio.
The wording and conditions of the tender, agreed with the European Commission included the following: sale of four shipyards at the initial price of one kuna, two shipyards (‘Uljanik’ d.d., Pula and subsidiary ‘Brodosplit – Naval and Special Vessels Shipyard’ d.o.o.) at their nominal value, sale of 25% of equity capital of company ‘Uljanik’d.d. to managers and employees under special conditions and submitting of a business plan for a period of minimum 5 years, anticipating the restructuring plan for a period of maximum 5 years following the date of concluding the share sale contract. The compulsory content of the restructuring plan comprises adequate compensation schemes and significant own contribution of at least 40% of total restructuring costs, along with the liability of a potential investor to co-ordinate the restructuring plan with the Croatian Competition Agency and the European Commission.
Notwithstanding huge interest of potential investors expressed in the process of shipyard privatisation (34 tender dossiers were purchased), only two valid tenders were received under the tender procedure which closed on 30 September 2009 (one tender for ‘Brodotrogir’ d.d. and another one for a subsidiary of Shipbuilding Industry ‘Split’, ‘Brodosplit - Naval and Special Vessels Shipyard’ d.o.o.). However, the submitted tenders did not meet the tender conditions, so that invitation of new tenders is expected in early 2010.
As regards other privatisation activities, it should be noted that privatisation of the only remaining agricultural conglomerate held in the CPF portfolio, the company Vupik d.d., Vukovar, was completed since the Government of the Republic of Croatia issued a decision on the selection of the successful tenderer at the end of 2009.
In the course of 2009, despite intense efforts aimed at privatisation of Croatian Railways subsidiaries (14 tenders were invited for 6 companies), not a single company was sold.
Completion of privatisation of the largest part of the remaining portfolio of the Croatian Privatisation Fund (CPF), as one of the preconditions for creating an efficient market economy, has remained the primary objective of the economic policy in the field of privatisation. Privatisation dynamics will also be determined, apart from the quality of the present share portfolio, by the speed of economic recovery at the global level, i.e. by the speed of overcoming recession, primarily in the EU Member States which are traditionally the most important foreign investors in Croatia, who in the previous period showed interest in individual sectors.
The announced concept of privatisation of a part of the CPF equity portfolio through closed-end investment funds, envisaging a transfer of shares in companies in minority state ownership to closed-end investment funds, the management of which would be entrusted to professional management companies selected at public tenders, has not so far been realised due to a considerable fall in share value on the capital market. However, that concept is still being
considered as a possible privatisation model and its implementation, in view of the planned state’s exit strategy from closed-end investment funds through an IPO, will depend to a large extent on the speed of the capital market recovery.
Since the state’s share portfolio has constantly been decreasing and a need has arisen for introducing new models which would simplify the procedures and expedite the privatisation process, a possibility of the CPF restructuring into a common umbrella institution for privatisation is being considered. In addition, the Government of the Republic of Croatia is expected to define the new model and institutional framework for the state assets management in the course of 2010.