Barring a sudden rush of disposals by the Wallenberg family, the biggest story in the Nordic capital markets this year is likely to be the Finnish privatization programme. Over Fmk20 billion ($3.6 billion) of assets are scheduled for sale in 1998. They include Neste and IVO, the state-owned oil and power companies which were merged earlier this year, Telecom Finland, Postipannki, the state-owned bank, as well as residual government stakes in Enso, the forestry group, and Helsingen Puhelin, the Helsinki Telephone company which was partially privatized last year.
As elsewhere in the world, competition for mandates has been fierce. Earlier this year, Morgan Stanley and SBC Warburg were chosen to lead (and value) the IVO/Neste transaction. With the company's market value estimated at Fmk20 billion, the IPO Ð of 30% of the share capital - could bigger than Fmk5 billion, making it the largest of the deals this year. SBC is also likely to be involved in the Enso sale thanks to its merger with UBS, the forestry company's nominated adviser. Merrill Lynch and MeritaNordbanken have the mandate to arrange the Telecom Finland sale. But Postipannki has yet to choose an adviser.
The selection of so few Nordic banks has been criticized by local players. "I think it is a little bit stupid not to include a local bank in the IVO/Neste deal,Ó says one. "The traditional method of using one local and one international lead manager has worked well in the past, so one wonders why they have changed." Bankers at Morgan Stanley argue that it simply reflects their superior distribution power among US and other international investors. Investor demand for the shares is expected to be strong despite the Asian crisis. "There is so much liquidity around that I cannot see any of the privatizations having problems finding investors," says one London-based banker. Foreign institutions are likely to play a very significant role judging by the amount of paper placed outside the Nordic region in the Rauma and Outokumpu deals last year. Bankers who worked on those deals estimate that over 50% of paper was placed outside the Nordic region. But in spite of strong international demand, none of the sales will be particularly easy. IVO/Neste is expected to be particularly problematic. According to bankers working on the deal, the two companies should be worth more combined than apart. The combination of IVO's generating skills with Neste's energy supply should put the merged company in a better position to compete with competitors such as Vattenfall and Germany's Preussag in the liberalized Nordic energy market. But this argument only holds true if Gasum, Neste's natural-gas joint venture with Russia's Gazprom, is included in the merged company, and this is something the EU has said it will block on competition grounds. The company hopes to circumvent this problem by lodging part of Neste's stake with the government or one of the advisory banks. Whether this will be enough to satisfy the conflicting demands of the EU and potential investors remains to be seen. Postipannki's sale is also uncertain. The bank (which recently merged with the Finnish Export Credit) is believed to favour selling at least part of its share capital to a European partner - possibly German or Swedish. However, with growing public opposition to greater foreign ownership of Finnish assets, the government may prefer to see the company floated instead. Strategic uncertainties are also likely to delay the Enso placement (worth some Fmk1.5 billion if 30% is sold). Following forestry company Stora's announcement earlier this year that it is seeking to expand through mergers or acquisitions, Enso is reported to have put the sale on the back burner until the path of consolidation within the industry becomes clearer. Telecom Finland would seem to have the clearest path to sale. International demand for telecom assets is at a historic high and Telecom Finland has 80% of the local mobile telephone market, handles 62% of international calls coming to and from the country and enjoys a growing presence in the Estonian and Latvian markets. Strategic buyers will be particularly interested in gaining access to Finland's telecoms market, which is regarded as perhaps the most sophisticated in the world. But valuation may be tricky. In November 1997 the government put a Fmk25 billion ($4.6 billion) price tag on the company. But following the Danish government's success in obtaining a price for its 43% stake in TeleDanmark from US operator Ameritech, the Finnish government is now believed to be looking for Fmk35 billion. This ambitious target may only be achievable if the company is sold to a strategic buyer, something the government is reluctant to do in the current political climate of suspicion about foreign takeovers. Outside Finland, privatization activity in the Nordic region in 1998 is expected to be limited. Telia, the Swedish telecoms company, and Telenor, its Norwegian rival - which are due to be merged this year - are both up for sale. Analysts estimate that Telia is worth Skr 45 billion ($5.5 billion) and Telenor Nkr 30 billion ($3.9 billion), making the merged company very attractive to international and local investors. However, merger plans could be held up by haggling over the location of the head office and choice of chief executive. Sweden, Norway and Denmark do not lack for assets to sell. Denmark still owns the national Post Office and Copenhagen airport. Norway owns 100% of Statoil and sizeable stakes in two banks, Christiana Bank and Den norske Bank. Sweden's portfolio is more mixed: it owns a pharmaceutical distributor, Apotex, a stake in airline SAS, a 33% holding in forestry group Assi Doman and a 30% stake in property holding company Castellum. But bankers are not hopeful that many will be sold this year. In Sweden, privatization will make little progress before September's elections. Norway is flush with oil wealth and hardly pressed for funds. Meanwhile, public opposition to foreign ownership of national assets has increased in all three countries. In Denmark, local shareholders in TeleDanmark were incensed at their treatment by Ameritech. The US company avoided having to offer a premium to minority shareholders by structuring its deal so that it bought less than 50% of TeleDanmark. The share price has since risen to the point where the argument is largely academic. However, a local investor is believed to be preparing a lawsuit against the company "as a matter of principle". Whether the current debate over foreign ownership will force governments to reduce the amount of shares placed outside the region remains to be seen. The decision to appoint two non-Nordic banks on the IVO/Neste deal suggests that the Swedish government is prepared to ride out the storm of public opposition in the hope of getting a higher price by accessing foreign investors. But according to one US banker, the government backed out of following the same strategy for last year's sale of part of its stake in Castellum. "The government could have got 10% more from the sale had they permitted a higher percentage of the shares to be sold to US real-estate funds," says one London-based banker. "But the government put the banks under pressure to price the deal at a level domestic investors were comfortable with."