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Capital Markets

Poland: Warsaw woos, Warsaw woes

Is Poland the new Russia? Not in economic superpower terms, but in riding roughshod over the wishes of foreign investors?

Despite attracting a record €10.9 billion in foreign investment in 2006, the Polish government seems to have developed a talent for upsetting large investors.

In recent months, the authorities in Warsaw have sought to change the terms of steel firm Arcelor Mittal’s acquisition of Polskie Huty Stali; battled to impose their will over the choice of the new chief executive of airline LOT in the face of opposition from foreign shareholders; and backed out of deals to sell two chemical plants to German chemicals company PCC, and a power company to Spain’s Endesa.

Eureko suffers

Eureko insurance group of the Netherlands is another victim of the Polish government’s backsliding over previously agreed details of its acquisition of insurer PZU.

For seven years, Eureko has fought to get Poland to honour its commitment to sell it a majority stake in PZU, one of the biggest revenue earners in the country. PZU controls 40% to 50% of the domestic life and non-life insurance markets, with the government maintaining a 55% stake in PZU, which some analysts believe is worth as much as 24 times more than eight years ago.

Eureko’s troubles started after it signed a deal in 1999 that gave it 33% of PZU for $666 million, valuing the company at $2 billion. The rest of the deal called for PZU to be floated on the Warsaw bourse and for Eureko to buy another 21% to gain majority control. But subsequent governments shrugged off the promise and the dispute has grown increasingly bitter.

Last year the two sides reached an agreement under which PZU was to have been listed on the Warsaw bourse, with neither side obtaining a majority stake. However, the deal was torpedoed by nationalist deputies upset by the foreign domination of the financial services market – more than 70% of Poland’s banking sector is foreign-owned.

Meddling in PZU

In a further instance of political meddling, in June 2006 the government dismissed Cezary Stypulkowski, who had headed PZU since 2003 and initiated an ambitious restructuring, appointing Jaromir Netzel, a political appointee with no previous experience in insurance, in his place. As a result Standard & Poor’s downgraded the outlook on PZU’s A– rating from stable to negative. "Even though the new management team has been in control for nearly a year and remains fully committed to reform, the risk remains of political intervention, and that is reflected in the rating," says S&P analyst Tatiana Grineva in London.

After four months with Netzel at the helm, Eureko withdrew its board representatives, citing "groundless statements by Mr Netzel" about Eureko.

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