‘‘BBiigg FFoouurr’’ ffiirrmmss ggrraabb ccrreeaamm ooff pprriivvaattiissaattiioonn ddeeaallss
Financial powerhouse Citigroup Global Markets has been chosen to advise the Cyprus government on the privatisation of telco Cyta, the former state monopoly that has seen its market share diminish ever since private players entered the scene.
The Cyprus Telecommunications Authority, established as Cyprus Cable and Wireless during British Colonial rule, is a steady dividend-paying utility and one of a handful of hens that lay the golden eggs of the state coffers.
However, ever since Cyprus was forced into a EUR 10 bln bailout by the Troika of international lenders (EU, ECB, IMF), the government is obliged to follow a path of privatisation and deleveraging that is aimed at selling assets worth EUR 1.4 bln by the end of 2018.
Private investors and international funds are keen to grab a share of the privatisation process that saw giants UBS, JP Morgan, Merril Lynch, HSBC, Nomura and Barclays Capital vying for the Cyta advisory.
Big Four audit firm PwC has also been hired as accounting advisor to conduct a due diligence of the telco, together with joint venture partners PwC Business Solutions SA and PricewaterhouseCoopers SA, with the aim of advising Citigroup that will be charged with finding a short-list of potential buyers by the end of this year. The government is also expected to hire two more consultants, a legal advisor and a technical advisor.
Citigroup is regarded as a leader in mergers and acquisitions in the wider Europe, Middle East and Africa (EMEA) region, having concluded some $22 bln worth of M&As and privatisations in 2012-2014, including the state telcos of Slovakia and Slovenia, and second worldwide with deals worth another $25 bln.
PwC’s team is expected to be enhanced with consultants who worked on the privatisation of Greek Telecommunications Organisation (OTE), currently majority-controlled by Deutsche Telecom.
Cyta is a Vodafone partner with its Cytamobile-Voda service, providing globally-designed mobile and broadband services. Their main rival in Cyprus is South Africa-owned MTN. Cyta has operations in Greece and the U.K., as well as interests in Mediterranean cable operators and other subsidiaries.
Government sources are quoted as saying that the selection of the consultants was not based on the lowest bids, but rather had a 70% weighting on the quality of services and 30% of the decision is based on the advisor’s scale of fees. Also, the biggest chunk of requirements is based on a success fee, suggesting that Citigroup may (or may not) opt for the highest bidder for Cyta.
The next step is for Cyta to be converted from a public interest semi-government utility to a private company with a single shareholder (the state), followed by the bidding process for potential buyers.
Other state assets slated for privatisation include the Electricity Authority of Cyprus (EAC), the Ports Authority (CPA), the Cyprus Stock Exchange, the Cyprus State Fairs Authority and smaller stakes in Cyprus Forest Industries, the Pancyprian Company of Bakers and other holdings.
The government failed to find a buyer for troubled national carrier Cyprus Airways that was shut down on January 9 with a total debt to taxpayers of about EUR 100 mln after the European Competition Commission said that all state aid to the airline was deemed illegal and had to be returned. KPMG had advised on the search for investors, with only budget operator Ryanair and Greek carrier Aegean Airlines expressing some level of interest.
The government is already going ahead with granting a national ‘super license’ for an integrated casino resort operator that is expected to reap about EUR 120 mln over the next eight years. It is being advised by Deloitte Cyprus and Deloitte UK.
Deloitte Cyprus is a subcontractor responsible for the financial due diligence for Limassol Port in the project led by Rothschild.
Deloitte Cyprus is also drafting a proposal for the Ministry of Health for the implementation of the new system for state doctors’ overtime pay, as state hospitals also undergo a process of autonomy and a National Health Scheme (NHS) is being introduced.
KPMG has been appointed by the CPA to consult on which services will be tendered to the private sector and which will remain with the state and it has also advised the Cyprus Tourism Organisation on a plan for a mass personnel movement across departments, in order to best exploit existing talent.
The state lottery, earning EUR 22.3 mln against expenses of EUR 1.05 mln in 2013, has also been slated for privatisation, but the state seems to be having second thoughts.
PwC has been tasked by state broadcaster CyBC to compile a report on its status and look into the possibility of turning into into a private company, as it’s viewership market share in non-World Cup years falls to an average 1012%.
Audit and advisory firm EY (formerly Ernst & Young) carried out a fair value assessment of the island’s Cooperative credit institutions (Co-ops), a term of a EUR 1.5 bln state capital injection to cover a capital shortfall and streamline the Cooperative savings banks under one umbrella entity, the Cooperative Central Bank that passed European Banking Authority stress tests in October.