The sale of significant minority state holdings in two of Europe's leading carriers has caused consternation in financial markets, albeit for different reasons.
At presstime, the German government was hoping to sell off its remaining 35.7 per cent stake in Lufthansa before the end of the year, while the Dutch state has elected to reduce its shareholding in KLM to 25 per cent by selling some 13 per cent of its holding back to the airline.
Financial markets had expected the sale of the German state's remaining holding for some time, following the initial flotation of the majority of Lufthansa's shares in 1994. The delay appears to have been caused by the need to resolve the nationality issue of the airline for bilateral purposes, which was awaiting European Commission clearance. One German airline consultant also says Lufthansa is still trying to rid itself of DM1.5 billion (US$980 million) in long-term debt - a hangover of its pre-privatisation days - in a bid to make it more attractive to investors.
The government had already incorporated the anticipated proceeds of the sale, totalling some DM2 billion, in its 1997 budget, and without that income it was facing the prospect of failing to meet convergence criteria for European monetary union.
Finance minister Theo Waigel has come up with an interim solution to ensure the proceeds are in the budget by selling the shares to the state-owned bank Kreditanstalt für Wiederaufbau. Indications are that the bank would then sell the shares on the open market later this year. But the move has caused concern among financiers in Frankfurt and lawyers amid suggestions the process is unconstitutional. 'People are saying this kind of parking is illegal under the constitution,' says the German consultant. Lufthansa was not available for comment.
A similar mood of disquiet has surfaced as a result of KLM's move to buy back some 13 per cent of the Dutch state's stake. The deal, which will cost the carrier some DFl1 billion (US$580 million), disappointed the finance community, despite the Dutch carrier's attempts to talk it up. KLM sees the move as 'maximising value to our shareholders' but analysts question the 'negative' use of the funds.
KLM has put together a 'war chest' totalling some DFl2.3 billion after a share issue that raised DFl1.2 billion in 1994. The carrier planned to use the funds to ease through a mega-merger that never materialised. But one London-based analyst questions the carrier's motives: 'If KLM is saying it would rather give the money back to its shareholders than invest in the business, then it is sending out a negative message in the long-term.' And one Amsterdam-based consultant, pointing to the state's neutral stance, agrees the deal doesn't make sense: 'I don't see the point.'
Source: Airline Business
