ČD Cargo bids on Polish counterpart PKP Cargo

State-owned ČD Cargo will bid for a majority stake in Polish counterpart PKP Cargo in its tender for privatization.

"It would be illogical for the fourth-biggest player in Europe [ČD Cargo] not to be present at the privatization of Polish [PKP] Cargo," Deputy Transport Minister Martin Sýkora told the weekly E15, although a spokesman for ČD Cargo would not comment further on the bid.

"Of course, we are monitoring all news and reports about the privatization," ČD Cargo spokesman Roman Jandík said.

The tender, which could be worth 13 billion Kč, is part of PKP's privatization to raise funds for its parent company PKP SA to "cover its historical debts," said Marketing Director Łukasz Malinowski of Railway Market, a publication of organization transportation analysis TOR Advisory group.

If ČD Cargo's bid is accepted, the combination of PKP, which is the second-largest freight train company, and ČD Cargo would result in an entity that could compete with giant Deutsche Bahn.

"Running freight trains in Poland and the Czech Republic would be more profitable than in just a single country, and they may well have in mind getting PKP would allow them to compete and penetrate markets in Germany and Slovakia," said Russell Pittman, a visiting professor at the New Economic School in Moscow who has written on Central European railways.

Bids on the tender, for a 50 percent plus one share stake, are due by May 12, and it's not clear yet who will be competing for the tender, or with whom ČD Cargo might partner to make the purchase.

"The question of capital funding and cash flow remains open ... so it's quite justified by the market development if ČD looks for a strategic partner," which could range from another transport company to a capital group, said Jakub Slavík, a technical director at consulting company Pro-Serv who has advised the Transportation Ministry on ČD Cargo in the past.

However, PKP's financial health is significantly better than ČD Cargo, which could make such a purchase difficult.

"It's rather doubtful that a smaller and worse-managed company that is still in the middle of a restructuring process and with the debt ČD Cargo has would be able to take over the bigger and faster-growing company PKP Cargo," Malinowski said.

There were rumors of a possible merger between PKP Cargo and ČD Cargo this January after comments from Transport Ministry officials indicated such talks were underway. However, PKP SA officials quickly dismissed that possibility. Transport Minister Vít Bárta has said he wants to increase the size of ČD Cargo.

"PKP Cargo got a license to operate on Czech rail infrastructure, and PKP has become a direct competitor to ČD Cargo. There's obviously a trend toward growth and increasing ČD Cargo's market position as there is in any other business," Slavík said.

ČD Cargo is also in the process of trying to issue a 2 billion to 3 billion Kč bond, which has already been approved by Czech Railways.

The bond issue "aims to replace the short-term source for the medium to long-term to better replicate the company's investment plans and diversify risk," Jandík said.

The bond would increase cash flow in the company, but has nothing to do with the bid on PKP Cargo, he said.

"The estimated value of PKP Cargo is much bigger than the value of the bond issue," said ČD Cargo's Jandík. "The issue of the bond is related to changing the strategy of debt financing."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com