Czech finmin says mulls CEZ share buyback-paper

(Adds analyst quote, background on political context)

PRAGUE, Nov 1 (Reuters) - The Czech government will consider allowing state-owned power utility CEZ <CEZPsp.PR> to buy back shares in the company from the state as part of its plan to aid the deficit-ridden budget, a newspaper reported on Wednesday.

Finance Minister Vlastimil Tlusty was quoted by the business daily Hospodarske Noviny as saying the sale of CEZ shares back to the cash-rich utility could help win opposition support for the government's plan of a partial CEZ share sell-off.

"We still prefer finding a partner for CEZ or floating the shares on the bourse (as a way of selling part of the state-held shares), but the discussion in the government will also be about CEZ itself buying the shares," Tlusty was quoted as saying.

The government should discuss his proposal on Nov. 10, the daily reported.

Finance Ministry press officials could not be immediately reached for comment.

The state holds 68 percent of what is one of the country's most profitable companies, and the government says it needs to sell CEZ shares worth up to 31 billion crowns ($1.4 billion) to pay for road construction without boosting the budget deficit.

Government officials have previously talked about selling 7 percent of CEZ shares.

In response to the government plan and investor concerns it is overcapitalised, CEZ said in late September it was considering a share buyback of up to 10 percent of its stock to invest excess cash and revamp its capital structure.

"We believe that CEZ will buy out its own shares from the government in the first half of 2007 and we have already reflected part of the upside into our new target price of 1,165 crowns," Wood & Company analyst Tibor Bokor said in a report.

CEZ shares were up 1.8 percent at 887 crowns at 0855 GMT on Wednesday.

The rightist Civic Democrat government's 2007 draft budget is counting on the CEZ share sale but the Social Democrats, the biggest opposition group, have opposed the plan.

The daily Hospodarske said the leftists might be willing to accept the CEZ share buyback.

"It is an option worth negotiating, but we want to first see an analysis whether this is advantageous for both the state and the firm," Social Democrat Deputy Vice-Chairman Bohuslav Sobotka was quoted as saying.

If CEZ buys back the 7 percent stake, analysts expect it to then withdraw the shares from the market, a move which would increase the company's debt ratio to 65 percent from 60 percent.

((Reporting by Marek Petrus, editing by Quentin Bryar/Sue Thomas; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477)) ($1=22.21 Czech Crown)

Keywords: UTILITIES CZECH CEZ