Polkomtel sale may fuel Polish zloty gains

The sale of Poland's No 2 mobile operator Polkomtel could trigger a surge in the zloty as the winning bidder converts part of an expected $6.5 billion of purchase funds into the local currency. Markets anticipate that a large inflow of foreign currency from the Polkomtel transaction - the biggest for years in the European telecoms sector - will push the zloty through a key resistance level and lift Polish bonds as well as shares of the firm's current owners.
"I think the potential impact on the zloty will take place one or two weeks ahead of the announcement of the deal," said Karol Zaluski, head of FX trading at ING Bank Slaski.
"There may be an impact from the real flow of funds through the market. There may also be a psychological impact - some players not involved in the transaction may open their positions ahead of the expected announcement of the deal."
Potential buyers have until May 6 to file binding bids for Polkomtel, 76 percent of which is owned by four state-controlled firms - utility PGE, copper miner KGHM, refiner PKN Orlen and coal trader Weglokoks.
Four out of five reported bidders are foreign private equity funds or telecoms companies that would probably need to exchange euros or dollars into zlotys.The sole Polish contender, media tycoon Zygmunt Solorz-Zak, is also likely to need some foreign financing.
"I would expect 1-2 billion euros to go through the spot market as a result of this transaction," a Warsaw-based currency dealer said. "This could easily push the zloty to 3.90 against the euro."
The rest of the Polkomtel transaction is expected to be carried out through FX swaps or other financial instruments which would not directly impact the spot market. Average daily turnover on the zloty spot market was $1.4 billion in April 2010, according to data from the Bank for International Settlements.
The zloty hit a two-month high of 3.9260 versus the euro on Wednesday, buoyed by a Finance Ministry plan to regularly sell part of the euro funds Poland receives from the European Union on the spot market. But contagion risks from a potential escalation of the eurozone crisis and large unexplained outflows in Poland's balance of payments data could mean the zloty struggles to break below a rate of 3.85 per euro, dealers and analysts said.
Polkomtel is expected to fetch as much as 18 billion zlotys ($6.7 billion), some three-quarters of which will end up in the pockets of its Polish owners.
As all four are state-controlled, a large chunk of that income is likely to be transferred to the state in the form of interim dividends and taxes. Interim dividends will also benefit other shareholders of the companies, which are Warsaw-listed.
Shares in KGHM have risen by 13 percent since the start of the year, with PKN shares gaining 23.3 percent and PGE 2.2 percent compared with an overall 6.3 percent increase in Warsaw's WIG 20 benchmark index.
Refiner PKN's expected 2.9 billion zloty earnings from the sale are likely to exceed its 2010 net profit of 2.4 billion zlotys, while utility PGE is expected to net 2.3 billion zlotys compared with its 2010 final profit of 3 billion zlotys.
KGHM could book up to 3.2 billion zlotys on its stake, almost 40 percent of the 8.4 billion zloty net profit the miner is targeting for 2011, analysts say.