Government of Sell Part of HEP to Buy Back Part of INA?

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According to media reports, government could sell 25 percent of Croatian Electrical Company (HEP) in order to buy back MOL’s share in INA.

The government has reportedly designed a model which it could use to finance the purchase of Croatian national oil company INA’s shares which are currently owned by Hungarian MOL. The idea is to sell 25 percent of Croatian Electrical Company (HEP) through an initial public offering. For the plan to be implemented, it is still necessary for it to be approved by coalition partners, reports Večernji List on December 30, 2016.

Although one of the possibilities considered was the establishment of a new energy consortium which would include several of the state-owned companies, analyses have established that such plan would not bring enough money to buy MOL’s share of INA. Various options have been under consideration for the past two months, since the government realized that the outcome of arbitration proceedings against MOL regarding INA could end negatively for Croatia. The government has already reportedly prepared legislative changes which prevented partial privatization of HEP which was planned in 2015.

It remains to be seen whether proceedings from partial privatization of HEP will really be used to buy back INA. One of key factors will be MOL’s decision, which first must declare whether it is ready to sell its share, and then agree with the government about the price. The price is crucial, especially considering that INA’s oil and gas reserves have fallen significantly, which will greatly affect its value. The government is confident that the IPO of HEP could be realized within six months, since it can use documents and analyses prepared for its planned privatization in 2015.

However, everything is still up in the air since neither MOL nor HDZ’s coalition partner MOST have yet announced their positions. At Thursday’s cabinet meeting, the government debated the issue behind closed doors. After the meeting, Deputy Prime Minister and Administration Minister Ivan Kovačić (MOST) said that they “have still not decided anything, but we were just informed”.

It is also possible that the government will look for a new strategic partner which would control 25 percent of the company, while Croatia would keep ownership of slightly less than 75 percent of the shares.

As for INA, pension funds own 4.31 percent of the company, about 1.7 percent of shares can be freely traded at the stock exchange, while the rest is divided between the government and MOL.


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