Reuters: Private Equity: DEALTALK-Polish PHN IPO may stumble on complexity, market woes

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DEALTALK-Polish PHN IPO may stumble on complexity, market woes Apr 16th 2012, 15:23 Mon Apr 16, 2012 11:23am EDT * Some in market sceptical on IPO of real estate group * Government had been hoping to raise $1 bln through IPO * PHN seen as too diverse to lure wary investors WARSAW, April 16 (Reuters) - The flotation of state-owned PHN, a centrepiece of Poland's 10 billion zlotys ($3.1 billion) privatisation plan for 2012, may fall through on the hastily-forged real estate group's complexity as well as the property market's malaise. With relatively easier sales of stakes in local financial groups PKO and PZU that the Polish Treasury could possibly run this year, some bankers think the ministry may even forgo the IPO, deeming PHN's diverse portfolio too complex to lure wary investors. The Treasury has already booked 2.52 billion zlotys from the sale of a stake in utility PGE this year and may gain 780 million if it agrees to Dutch-based Rabobank's offer for shares in lender BGZ. Some analysts say investors are unlikely to pay a premium price for PHN, whose assets range from commercial office space to residential and whose IPO some say the government was hoping would raise an estimated $1 billion. "This business offers no premium for diversity," one Warsaw-based analyst said. "I would expect a valuation at a maximum of 0.5 times book value. Even if it finally is sold, I would not expect great upside." PHN, forged last year by pooling together 180 different real estate and land holdings, runs a portfolio estimated to be worth between 2.6 billion zlotys and 2.8 billion. Its assets include Warsaw office building Intraco, built in the 1970s and requiring a heavy overhaul, as well as villas in the capital's upmarket district of Wilanow rented by foreign embassies. "I just don't see it (an IPO) happening, either this or next year," a local investment banker said on condition of anonymity. "It's too complex on the inside to pitch it to individual investors in an IPO." REAL ESTATE MALAISE Valuations are anyway unexciting in Poland's real estate sector, with Warsaw-listed real estate holding GTC trading at 0.47 times book value, market peer Echo Investment at 0.91 and Plaza Centers at 0.31. PHN Chief Executive Wojciech Papierak, however, says comparisons could be misleading. "There's a tendency to compare us to developers, which does not correspond with what we do," Papierak said. "Developers build and sell, while we want to build and keep in order to manage." "There are valuable assets in our portfolio, which include ready projects as well as land for future investments. We also own real estate that does not suit our portfolio and we want to gradually sell it." The Treasury was not available for comment, but a source close to the process said the ministry might opt to sell less than 100 percent. "The real estate market is in an uneasy situation, so the Treasury may consider a variety of options, including selling less than the planned 100 percent and a cooperation with some real estate fund," the person said. Sources told Reuters in February the treasury might try to line up a real estate fund among PHN shareholders to ensure a successful IPO and offer the company the benefit of its experience. Paul Kusmierz, head of Master Management Group, whose activities include overseeing local real estate assets for private equity firm Blackstone, said there was a lot of cleaning up to do in PHN. "We know PHN is to be floated and I know there have been some talks with Blackstone, but from the looks of things PHN lacks clear structure or focus," Kusmierz told Reuters. "There's a lot of work to be done inside and my thinking is it would need some local partner with know-how and a strong team on the ground here to help manage it. As Master Management Group we are not interested in PHN." PHN's prospectus is supposed to be placed with local regulators by the end of this month, with a market debut planned for June. Link this Share this Digg this Email Reprints

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