CROATIAN TELECOMMUNICATIONS SOLD OUT

AIM, ZAGREB, 8.10.1999.

Croatian telecommunications, probably the only actual gold mine in the impoverished Croatian economy, were sold out on Monday, October 4, to Deutsche Telecom, a German telecommunications company, the largest in Europe and third-ranking on the world scale. Formally, the state of Croatia still owns a control package of shares (65 %), as the Germans bought from the government only 35 % of Croatian Telecom (CT), but the circumstances of this business deal indicate that the German giant, in a foreseeable future, will become a dominant CTÆs share-holder. At this moment, the selling of the companyÆs control package was unfeasible as the leaders of the Croatian ruling party HDZ have many times sworn that the major ownership of CT will always remain under the state control and in the forthcoming election period someone could remind them on this.

The Germans paid 850 million US dollars for the mentioned 35% of CT shares - nearly 160 million more than was offered by the only other contestant, a Norwegian telecommunication concern Telia Telenor. In regard to the Norwegian bid of 641 million dollars, the price at which Croatia sold its most valuable company could not easily be defined as a dumping deal. Whether the deal is so favorable as members of the government are trying to present, however, remains an open issue. The content of the selling contract, for example, is kept as a high-top state secret. Its provisions have not been covered up by any domestic media so far. This fact, accompanied by some others, leaves a lot of room for speculations why Croatian telecommunications, and under what conditions, ended up in German ownership.

The contest for selling of CT resembled a crime-novel in the business field, with a number of surprising and highly unexpected shifts. The first surprise was the very fact that the state was willing to sell the company. Only a year ago, the HDZ officials were repeatedly declaring that, because of strategic, security and business reasons, the telecommunications company will remain in the state ownership. High external and internal debts and the forthcoming elections, yet, forced the ruling party to change its stand. Once they had decided to give away a part of the shares, the government officials claimed it could be only a quarter, in no way - a control share package. But even this, self-imposed limitation, was exceeded and, as publicly known, 35 % of shares were sold. These, however, were not the only astonishing turns. Croatian Telecom ended up in German hands at the general amazement of domestic public.

During the first bidding round, the Germans in fact did not count as a potential buyer, since they had not sent their offer at all. They were unsatisfied with the fact that the Croatian government had not offered a control package of shares for sale, as Deutsche TelecomÆs standard policy is to buy the majority of shares. On the other hand, the Norwegian Telia Telenor company supplied a bid for 611 million dollars which was met by official Zagreb with a great disappointment. The Cabinet and the Parliament met on the same day, with a common conclusion that a final decision be postponed for September 29, as the Norwegian offer appeared too low. In the meantime, the Germans sent a letter to dr. Franjo Tudjman, asking to participate in the bidding, but under conditions different from the ones offered. On September 29, the government finally rejected the Norwegian proposal and announced a new bidding round until October 4 . After a new round of government negotiations with potential buyers, Telia Telenor offered 30 million dollars more than before

• 641 million dollars, while Deutsche Telecom came out with a very good offer of 850 million - 800 million to be paid immediately and 50 million after verification of CTÆs balances.

Some experts assert that, after the first competition round had failed, the government was obliged to start a new one. Participation of Deutsche Telecom in the prolonged bidding round, since it did not apply at the beginning at all, in this view, was illegal. But, as the Germans in the selling game lobbied the top-level authorities - Zagreb was visited by two former German foreign affairs ministers Hans Dietrich Genscher and Klaus Kinkel, and the final decision, in fact (against publicly announced conditions) was made by President Tudjman himself, it is most likely that the Norwegians will not consider filing a complaint. Namely, in a potential controversy, bidding conditions provide the supreme authority of Croatian institutions, so complaining would be just a waste of time. "It is clear to us what we have served for, and we have no more comments", representatives of Telia Telenor said. This company, most probably, was ascribed a role in bringing up the price of CT, as the Germans, according to some information, were willing at first to offer only 600 million dollars.

Before it was sold, the value of Croatian telecommunications was assessed at about 2,4 up to 3 billion dollars. This could mean that the selling deal achieved a bottom, but real limit of profitability. The Cabinet, led by Matesa, was immediately ready to use this fact for self-advertising purposes, declaring that, in comparison with other transition countries, Croatian telecommunications was sold at the highest price. The trade union is of an opposite opinion: according to trade union leaders, by selling the company, the government satisfied only its own interest - filling up the drained state budget. As the selling contract lacks social provisions, the trade union announced a war to the government and a new German owner of CT. No one seems upset because of this.

Be it as it were, Croatian government has carried out this operations quite skillfully. In the game, whose legal character will not concern anyone too much once the whole thing becomes a past event, it earned nearly 300 million marks. According to Prime Minister Matesa, by this money the government will provide the state budget for the next year and solve a whole list of problems. Without doubt, the selling of telecommunications industry will also improve the HDZ prospects in the elections. There will be no pensioners dissatisfied by late pensions - this part of the electorate numbers about one million people - and some amount of money will surely be spent on state, i.e. party propaganda, like economic sanation of some companies, opening of new building sites, etc.

Selling out of the "Croatian family silverware" - the most valuable parts of Croatian economy - has started at the point where the money can be got most easily. A telecommunications company is not hard to sell, as it is a stable enterprise, with more or less clear balances, clear prospects for profit and without a serious competitor on the domestic market. Croatia is yet to privatize Croatia Insurance, Economic Bank, Rijeka and Split Bank, INA, Croatian Electrical Industry, and PeopleÆs Newspapers. These are also stable companies, but much less worth than Croatian Telecom. For many times, CT has made a larger profit than the next ten companies on the list of most successful enterprises together. Last year, CT made a profit of 500 million kuna. In a reasonable period of time, thus, this business deal will prove profitable for the Germans. Of course, it would have been better if Croatia remained the owner of its telecommunications, but the government with a large burden of debts has to save itself from drowning with any means disposable.

Quite recently the government has announced the selling of hotels in Dubrovnik and other places at the Adriatic coast, according to the minister of tourism, "below their bookkeeping value". The criteria, as it is claimed, will be primarily social. Croatia is going to follow the case of Hungary - in this country, most likely, in the close future, owners of everything will be - foreigners.

Boris RASETA (AIM)