Prague Stock Exchange head warns of 'end of the Czech capital market' if CEZ is nationalised

The Prague Stock Exchange could be downgraded to a frontier market if the Czech government goes ahead with its plans to split up and nationalise the majority state-owned power group CEZ, by far the biggest company on the bourse, Petr Koblic, general director of the exchange, told Bloomberg in an interview published on January 15.

“The whole debate about whether the government should buy out CEZ minorities has been totally misguided,” Koblic said. “The worst-case scenario facing the market right now is some sort of a split, in which one part of CEZ would remain listed, possibly with a much higher free float, while the other part would be delisted.”

Koblic said there was "no reason" to increase state control now that the energy crisis has eased, and warned that if the Czech government did so, CEZ would lose its attraction for foreign investors in the shares, which would lead to "the end of the Czech capital market," he said. The Czech government currently has a 67% stake.

The Czech cabinet has been working to strengthen the government’s control over the energy market and infrastructure in the country in the wake of the energy crisis and the Russian full-scale invasion of Ukraine in February 2022. It wants to boost energy production to compensate for the phase-out of coal-fired plants, prepare for higher electricity demand due to the development of e-mobility, and ensure the country remains self-sufficient in power.

It has been considering various options, a leading one being to divide the company and take full control of a part generating nuclear energy and potentially other generating assets, while leaving a rump with a higher free float on the stock exchange. This would enable it to invest in building new nuclear reactors without being obstructed by shareholders concerned about the viability of the CZK160bn (€6.47bn) investment.

To facilitate a split of the company, the cabinet has proposed a legislative change to lower the vote majority required for such key decisions to 75% from 90%, guaranteeing the state would prevail in the vote. However, parliament has yet to pass this proposal amid an outcry from minority shareholders. In his interview, Koblic speculated that the government may now be moving away from this plan.

Uncertainty over the government's plans has hit CEZ share prices. The stock is down about 20% since its 15-year high reached last year, underperforming other European utilities in the period, Bloomberg reported. 

CEZ, with a market capitalisation of $23bn (€21bn), is the largest public company among the post-communist EU member states of Central and Eastern Europe. It has become an even more crucial player on the local bourse after several stalwarts left it, including Czech financial group's PPF’s telecom O2 and media group Central European Media Enterprises (CME), Zentiva pharmaceutical company and coal mining New World Resources (NRW), Bloomberg noted.

From a peak in 2007 to the end of 2023, the turnover of the main PX index decreased by 87%. Last year turnover dropped by 26% year-on-year to CZK123.5bn.

The bourse has also failed to attract any IPOs in recent years, although powder metallurgy company Gevorkyan from the new START index for small and medium-sized companies last year graduated to the main bourse. START itself has had 15 IPOs since 2018, Bloomberg reported, but its total market capitalisation is still only $500mn.

In the interview, Koblic proposed that the cash-strapped government should instead sell more state shares in CEZ bourse and list the state-controlled Prague Airport, which would also increase the attractiveness of the bourse.

“People keep saying the government could boost the capital market by floating more assets,” Koblic said. “But there is not much more to float, other than the rest of CEZ and the airport.”