UPDATE 2-Czechs to sell part of CEZ, company seeks buy-back

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By Jan Korselt

PRAGUE, March 19 (Reuters) - The Czech cabinet approved on Monday a plan to sell a 7 percent stake in electricity generator CEZ , which the company, the country's biggest, said it wanted to counter through a share buy-back.

The state holds 67.6 percent in CEZ, the region's dominant power utility with a market capitalisation of $24.8 billion.

The 7 percent stake, which the government will sell on the capital market, is worth 36.2 billion crowns ($1.74 billion).

CEZ said it would ask shareholders, dominated by the government, to approve the buy-back at a general meeting planned for April 23.

"We will certainly be interested in that," CEZ spokesman Ladislav Kriz said. "We will propose it to shareholders at the general meeting."

Asked how many shares CEZ intended to buy, he said: "It will depend on the technique and conditions, but certainly we would like to have those 7 percent."

He said the working assumption was the shares would be cancelled but added the issue would only be decided on later.

Finance Minister Miroslav Kalousek said a sale on the capital market was the most transparent way of offering the state stake. The government had also mulled selling the shares to CEZ directly.

Kalousek refused to say what the government's position on the buy-back plan would be. The government did not give an exact time frame for the sale of its shares, but it needs the money this year to fund road construction.

"The revenue from the sale of the 7 percent will be a state budget revenue, which will be then transferred into the State Fund of Transport Infrastructure," he told a news conference.

The Finance Ministry has said without the privatisation revenue, the central state budget deficit would rise to 122 billion crowns this year from the planned 91.3 billion crowns.

SHARES DIP

CEZ shares dropped 0.1 percent to close at 874 crowns, underperforming the PX index which rose 0.64 percent. The stock has fallen from an all-time high of 1,013 crowns in December but still trades about 7 percent up year-on-year.

"We view this news as neutral for the share price," said ING analyst Barbara Seidlova.

"We think a buy-back would be positive for CEZ, because it would improve its capital structure by increasing net debt to equity ratio from 9 percent to 31 percent, assuming cancellation of the shares," she said.

The sale has met some opposition in the cabinet because the state will lose its two-thirds majority in the company.

Ministers for the centrist Green Party abstained from voting on the plan.

But Kalousek and Industry and Trade Minister Martin Riman have said the government should be able to command two thirds of the vote at general meetings which are not attended by many small shareholders.

The government has not made any plans for a further sale of CEZ, as energy security becomes a key issue in Europe.

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($1=20.87 Czech Crown)

Keywords: CZECH CEZ/SALE