Czech Infrastructure Owner Plans IPO
Czech energy group EPH is planning to float an initial package of shares and securities in its wholly-owned subsidiary EPIF on the Prague and London stock exchanges. The offering is expected to be completed in Q2 2016, subject to market conditions, and EPH is planning to retain a majority stake and to keep investing.
Following a related reorganization of ownership on April 12, EPIF acquired from EPH a 100% interest in EPH Gas Holding, which indirectly holds a 49% stake and management control in SPP Infrastructure, the parent company of Slovakia's gas transit system Eustream.
The largest gas transit operator in the European Union, Eustream earns dependable revenues from Gazprom, which has booked capacity rights in the pipeline system, giving it the right to ship 50bn m³/yr until 2028. That is out of a total 80bn m³/yr capacity in an east-west direction. EPH says that last year Eustream shipped 55.8bn m³, suggesting that it could have shipped 5.8bn m³ in the other direction, to Ukraine, through a small interconnector which Gazprom does not control.
But its Russian contract might not be renewed, or could be terminated early if Gazprom and partners build Nord Stream 2, limiting the options for growth at Eustream. There is the possibility though of further pipeline connections with neighbouring grids in the east, such as the Eastring proposal.
The company also owns some 3.7bn m³ of storage capacity in the Czech and Slovak Republics, although this is a less profitable business than before, with flexibility being priced competitively on the regulated market and peak demand for gas being lower than in the past thanks to weaker demand from industry and power generators, leading to a very slight winter-summer price difference. A number of storage operators have mothballed some of their facilities as the cost of upgrading and maintaining is not offset by the capacity sales.
Other assets in the package include power and heat distribution. Across these segments, EPIF owns and operates strategically important infrastructure assets with high barriers to entry and strong cash flow generation capability, the seller says in the prospectus.
EPIF CEO Tomas David said the company operated a portfolio of modern, well-invested and long-lived infrastructure assets which are of vital importance to the European energy market. The company intends to distribute a dividend of some €365mn for 2015 and to grow the dividend by 3%/year to 2020.
EPH chairman Daniel Kretinsky and fellow shareholder Patrik Tkac jointly hold two-thirds of the voting rights in EPH; the remaining third is controlled by private equity firm J&T. It owns assets, including power plants, in the Czech Republic, Slovakia, Germany (where its subsidiary Mibrag is a significant coal producer), Italy, Poland, Hungary, and the UK.
William Powell