Prague Bourse Pins Survival Hopes on $23 Billion Power Maker

Krystof Chamonikolas
·4 min read

(Bloomberg) -- After years of watching the Czech stock market shrink, its boss now sees the very survival of the bourse hinging on how much politicians meddle with the country’s most prized asset.

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Power producer CEZ AS — the biggest traded company in the European Union’s eastern wing with a $23 billion valuation — is entangled in government efforts to boost control over energy industry. While the cabinet is vague about its plans, the risk is that it will end up carving up the utility and taking part of it off the market.

The state has “no reason” to delist CEZ, or its part, after the energy crisis has abated, Prague Stock Exchange Chief Executive Officer Petr Koblic said in an interview. He called on the government to stop seeking more ownership of power plants, and even urged it to sell some of its 70% stake in the utility to help rein in the budget deficit and rekindle trading.

Koblic, 52, warned that without CEZ the bourse would probably be kicked out of emerging-market indexes and reclassified as a frontier market, triggering outflows of tens of billions of euros. As that would mean “the end of the Czech capital market,” politicians now appear to be moving away from such option, according to the CEO.

“The whole debate about whether the government should buy out CEZ minorities has been totally misguided,” Koblic said. “The worst-case scenario facing the market right now is some sort of a split, in which one part of CEZ would remain listed, possibly with a much higher free float, while the other part would be delisted.”

CEZ shares have been more volatile than peers since mid-2022 on speculations about various revamp options and their potential impact on investors and the exchange. The state might get full ownership of the entire company or its power plants, take over its nuclear-reactor projects, or even do nothing.

The stock is down about 20% since its 15-year high reached last year, underperforming other European utilities in the period. CEZ rose 0.2% to 956 koruna as of 12:05 p.m. on Monday.

To cut reliance on Russian energy imports following invasion of Ukraine, the Czechs have mostly switched to LNG shipments via western Europe, commissioned by CEZ, while the government has also bought natural gas storage facilities and pipelines.

But gaining more ownership of power plants has proved difficult. Plans to curb state debt make the government unlikely to pay the premium investors would demand in any buyout, while a draft law allowing the state to force an uneven split of CEZ assets without the consent of minority owners is nowhere near approval in parliament.

Read more: Czechs Delay Verdict on Bill Guiding Revamp of Power Maker CEZ

During two decades in his job, Koblic has had to contend with Czech companies preferring to take loans over selling shares, which has kept initial public offerings at minimum. The bourse has also endured some high-profile departures, including drugmaker Zentiva, telecommunications group O2 Czech Republic, coal miner New World Resources and broadcaster Central European Media Enterprises.

As a result, the turnover within the main PX Index shrank 87% between a peak in 2007 and last year. That compared with a 24% increase for the S&P 500 Index and a 76% surge in neighboring Poland.

To slow the decline, Koblic launched the START platform for small companies, which has hosted 15 IPOs since 2018 but has a total market capitalization of just over $500 million. One of its members has recently moved to the main market, with another company likely to follow soon, a trend that the CEO hopes will encourage more startups to go public.

He said the government should also consider an IPO of Prague’s international airport, while still keeping majority for strategic reasons.

“People keep saying the government could boost the capital market by floating more assets,” Koblic said. “But there is not much more to float, other than the rest of CEZ and the airport.”

(Updates with additional CEO comment in fifth paragraph, CEZ share price in seventh.)

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