Making tracks

Making tracks
23.4.2007 Czech business weekly 01 Titulní strana
By Jason Hovet
Having long trumpeted its status as one of the last Czech construction groups backed solely by domestic capital, Tchas has decided many of its fortunes now lie abroad.

It was four years ago that construction firm Tchas decided it should go with the market trend and invite a strategic foreign investor to come onboard. Now, with the Czech construction market still booming at full capacity, and Tchas set on expanding into foreign markets, the group has signed an agreement with Eiffage, giving the French construction group a majority share in Ostrava, North Moravia-based Tchas. The groups have thus far declined to disclose the size of the stake or its price and, although it has sold a majority stake to the French entity, Tchas insists that “strategic partner“ is the right description for Eiffage.
“Eiffage gave us the best strategic outlook,“ said Václav Daněk, Tchas’ coowner and director. He added that the deal signed March 30 will help Tchas become more competitive in the markets it currently operates in-the Czech Republic, Poland and Slovakia-by adding stronger know-how and financial stability.
Ironically, Tchas’ new majority owner-which built Paris’ Eiffel Tower and prides itself on being “very French“-is now fighting off a takeover bid from Spanish construction group Sacyr Vallehermoso. Sacyr, owner of 33.2 percent of Eiffage, had been pushing to gain seats on Eiffage’s board but its actions were thwarted at a shareholders’ meeting April 18-the same day Tchas and Eiffage introduced their partnership at a press conference called at the International Builders Fair in Brno, South Moravia.
Ahead of the shareholders meeting, several other Spanish groups-believed to be allied with Sacyr-began buying small stakes. However, in a controversial move expected to lead to several legal challenges, Eiffage’s board stripped the new Spanish shareholders of their voting rights at the meeting. On April 19, Sacyr launched an all-share bid for Eiffage.
Tchas and Eiffage officials said the shareholder dispute will have little effect on Tchas’ future within the Eiffage group as the deal between the groups is already signed and reneging on the agreement would lead to financial see Czech p10 continued from p01 penalties-although no amounts were specified. Daněk said last week that the problem is Eiffage’s and that he hadn’t been following the issue closely.
Time is ripe The entrance of a strategic investor into Tchas is a smart move, observers say, as the construction group -which concentrates on building and railway construction works-has been pushing its way into foreign markets over the past two years. This follows a trend in construction as more groups start exporting work abroad backed by foreign capital. “It’s logical to aim at foreign markets,“ said Václav Matyáš, president of the Czech Association of Building Entrepreneurs (SPS), adding it’s often just a question of finding capital to make the move.
With Eiffage, Tchas receives a partner already active in 10 European countries that recorded 2006 turnover of E 10.7 billion (Kč 299.7 billion). In 2001, Eiffage bought the fifth largest builder in Poland, a market Tchas is now trying to grow in. “The partnership [of Tchas and Eiffage] will help create synergies in the group,“ said Emeric de Foucauld, a manager in Eiffage’s corporate development division who was present at the TchasEiffage press conference.
Tchas entered the Polish market in 2005 by buying 80 percent of Polish railway construction group Pebek Radom. In May 2006, a consortium of Czech and Polish builders led by Tchas won a Kč 1.4 billion order to modernize a 121-kilometer stretch of railway in Poland that is part of the European corridor, which qualifies it for EU support. Tchas has also won a tender to modernize railways in Slovakia and, Daněk said, the group is aiming to gain work orders to modernize European railway corridors in Romania and Bulgaria.
This year, some 30 percent of the group’s turnover-expected to surpass Kč 8 billion-is to come from foreign projects. In 2006, Tchas’ achieved Kč 6.5 billion in turnover, making it the country’s sixth largest builder.
Links to Zeman?
Daněk called the entry of Eiffage the next stage in Tchas’ 16 year development. The group has moved through many stages since it was founded in 1991, including funding the construction business through lucrative coal trading contracts in the 1990s and having to shake off a reputation for being too close to regional municipality authorities and the Social Democrats (ČSSD) while the party was helmed by Miloš Zeman toward the end of the decade.
Led by Daněk, who held a 60 percent share of the company prior to the Eiffage agreement, and Milan Lasák, who retained the remaining share, the company got its start with the 1992 privatization of construction engineering firm Inženýrské stavby Orlová. Around this time, the group won some contracts with then state-owned regional coal mining group OKD. However, when OKD had trouble paying in cash, it offered Tchas coal as compensation. “By origin I’m a graduated contractor, however my private business affairs started with coal trading-as a result of receiving some coal as payment, we started trading with it,“ Daněk told CBW.
Tchas soon became a chief trader for OKD with sales of more than 100,000 tons annually, according to press reports. In 1993, the group realized turnover of Kč 1.3 billion, compared to only Kč 250 million the year before. It has always invested any proceeds from coal trading into the development of its construction activities, Daněk has said in past interviews.
Daněk said an important moment in the group’s development was in 1997 when it received its first railway modernization contract. “We participated in the modernization of the railway station in Svitavy [South Moravia] and part of the railway corridor [there], which was an important milestone,“ he said.
Tchas’ coal trading business, on the other hand, was hurt in 1998 when OKD was partially privatized to “coal barons“ Petr Otava and Viktor Koláček. In 2001, OKD pulled out of a five-year contract signed in 1999, which led to legal disputes that ended in 2004 when an Ostrava court ordered OKD to pay damages worth Kč 132 million, although the dispute was settled out of court in 2005 without the terms being disclosed. Daněk said the coal contracts had been worth nearly Kč 1 billion in annual turnover. The group continues to trade in coal and other fuels, and in 2002 it started importing Russian coal. In 2005, trading turnover amounted to nearly Kč 300 million.
Tchas was able to make up for the loss of coal trading revenue with acquisitions of regional builders-Ingstav Opava, Unips Ostrava and Ingstav Brno-at the end of the 1990s and the beginning of this decade. However, critics say Tchas’ close political ties with regional municipalities have also helped the group. In 2005, watchdog group Transparency International questioned the transparency of city contract tenders in Ostrava, North Moravia, pointing out how Tchas was the usual winner.
Tchas completed work on Ostrava’s ČEZ Arena in 2004, a project it received without a tender from the City Hall company overseeing the arena reconstruction. The project’s budget was originally less than Kč 300 million, however final costs reached Kč 700 million.
Daněk said Tchas only wins a fraction of the tenders it participates in. In 2005, according to the group’s annual report, Tchas participated in 595 public tenders and won 189 projects.
Tchas has also allegedly continued to benefit from ties to the ČSSD. Daněk has never denied the group’s connection to Zeman, however in a 2003 interview with daily Mladá fronta Dnes he said that when the Zeman government changed in 2002, “we continued to grow and are more successful now.“
The group hasn’t always gotten what it wanted. Tchas, together with engineering group Eltodo, agreed to buy a 78 percent stake in rival builder Subterra in 2003 for a reported Kč 724 million, however they missed the deadline for the first payment -reportedly because they weren’t able to secure a bank loan. As a result, Subterra went back up for sale, and was bought by rival Metrostav later that year. The deal would have placed Tchas among the three biggest market players, behind market leader Swedish-owned Skanska CZ, with sales of Kc 29.4 billion in 2004, and Slovak-owned Metrostav, with sales of Kč 19.5 billion in 2004. * SECTOR: Construction OWNERSHIP: French group Eiffage holds the majority stake; the remaining shares are held by Václav Daněk and Milan Lasák FOUNDED: 1991 TYPE OF COMPANY: Limited liability NUMBER OF EMPLOYEES: 1,462 (in 2004) MAIN COMPETITORS: Metrostav, Skanska CZ THE ELEVATOR PITCH: Sacrificing its status as one of the last Czech-owned construction groups, Tchas has taken on a foreign strategic investor to help it expand abroad. Already active in Poland and Slovakia, it wants to win projects in more EU states, especially new EU members Romania and Bulgaria, where work to modernize EU railway corridors is to commence. The company’s origins are in coal trading and regional works, but it has now grown into a group with turnover of Kč 6.5 billion, much of it from foreign orders.

Foto autor| Jakub Stadler

Foto popis| SPS’ Matyáš (left) and Tchas’ Daněk (right) met with Eiffage representatives in Brno.
Foto autor| Jakub Stadler