RAba Privatization
MAKING HISTORY
Poland - strong profile
12
ceec update
WHAT'S NewS Issue 2 February 1998
Rabobank Hungary has just succeeded in completing one of the most complex
and politically sensitive flotations in the history of Hungarian privatization - the
sale of government held shares in Raba, a large engineering group which
produces engines and axles for motor vehicles.
Our mandate for the USD 95 million deal,
the second largest privatization in Hungary
after that of the Matav telecommunications
group, was won against fierce competition
from a field of 32 leading glohal players,
including such giants as CSFB, ING Barings,
HSBC, Warburg, and Nomura. 'In Hungary,
this was considered a miracle,' says Tamas
Simonyi, our General Manager in Budapest.
'Our Investment Banking arm hadn't even
been granted its license and yet we succeeded
against some of the world's leading players.'
MORE COMPETITIVE
Success was due in part to the high level
experience Rabobank could field. Simonyi is
himself a veteran - eighr successful
privatizations - on the Hungarian scene.
Another advantage was the fact that we
were able to offer more competitive fees
than any of the other players due to the fact
that our operation in Hungary has a lower
cost base than that of the London-based
houses. 'Of course, the big boys didn't
particularly appreciate this - but that's
business,' Simonyi remarks.
c
DIRTY DOZEN
The deal itself was fiendishly complex: not
only was the government's 80 percent share
stake to be privatized, but the exercise had
to coincide with a USD 25 million capital
increase to meet Raba's pressing needs for
growth. 'Raba was once considered among
the "dirty dozen" of old Communist-era
monoliths,' says Simonyi. 'Everyone was
sure it would collapse. In fact, under
inspired management, it executed a
remarkable turnaround; it now ranks as one
of the most profitable and technologically
sophisticated players in its field.'
MISSION IMPOSSIBLE
Such an attractive company won the notice
of many big international players - both in
Tamas
Simonyi
'won the
mandate
against fierce
competition'.
the financial and industrial spheres. One
persistent suitor was Daewoo of Korea, fori
example, but management and the
workforce were opposed. The deal was
complicated by the government's insistence
that Raba be sold in a number of small
parts - a task that was viewed by many as a
'mission impossible'. Moreover, some 15
percent of the shares had to be offered to
employees at a preferential rate.
ROADSHOW OFFER
Rabo Hungary successfully assembled a
core of five strategie investors to subscribe
the capital increase and buy a large part of
the government shares. This paved the way
for public flotation on the international and
domestic markets later in the year. 'Our
November roadshow came amid terribly
adverse market conditions - it was the same
week as Yamaichi collapsed and there was a
great deal of market uncertainty and there
were those who feit we ought to pull the
offer altogether. Fortunately we pressed on
and we were rewarded with enormous
interest. Internationally, the issue was six
times oversubscribed.'
COMPLEX STRUCTURE
Structuring the employee offering to insure
the shares would not be quickly dispersed
involved detailed legal arrangements;
executing the subscription was a major
administrative challenge. But all went
without a hitch. This was possibly the most
complicated privatization in Hungarian
history,' Simonyi maintains. 'We were able
to completely satisfy the needs of both our
customers - the Hungarian government and
Raba itself - and at the same time generate
substantial fee income that more than
covered the entire 1997 expenditure of our f
new Investment Banking arm.'
The start of 1998 inaugurated a new phase in our commitment to the Polish
market. In December, agreement was reached on a purchase of 49 percent of the
Warsaw-based Rabo-BRP Bank Polska SA, transforming the operation into a
wholly-owned Rabobank International subsidiary. At the same time, we have
doubled the banking operations' capital from Zloty 37 million to 75 million. All
clear signs of where the Poland operation is heading.
Rabo-BRP Bank Polska began as a strategie joint
venture with six other partners which included
the EU's Counterpart Fund (which held the
largest individual stake), the Polish-American
Enterprise Fund,and four Polish entities with
smaller stakes. From the very start, however,our
joint venture shareholder agreement foresaw
an eventual increase in our holding to 76
percent. Heavy initial startup costs led to
differing strategie views about the timing of this
increase and the best trajectory of development
for the operation overall. Although we proposed
to increase the firms'capital as early as last year
- an exercise that would have diluted our
partners'stakes - other shareholders wished to
see improved performance first.
LONG-TERM COMMITMENT
Rabo-BRP Bank Polska has expanded even
faster than was originally anticipated.This has
been due primarily to proliferating
opportunities in the F&A-related business
sector in Poland.Thus, in light of our long-term
commitment to this market, and given the
accelerating pace of interbank competition,
our next best option seemed to be a complete
takeover of the outstanding shares.
Negotiations began late last year and
agreement in principle was reached in
December. Looking ahead, we are now in the
process of expanding our Investment Banking
presence in Warsaw.The aim is to carve out a g
strong profile, not least in the equity
brokerage and Initial Public Offering (IPO)
fields, at a time when Poland's F&A players are
turning to the market for badly needed
expansion capital.
