Failure to sell ICC likely to prompt review

The decision by the Minister for Finance, Mr McCreevy, to withdraw ICC from the market has raised serious questions about the privatisation prospects of other State companies.

The failure to sell the State bank, despite initial expectations that it would attract widespread interest, is likely to prompt a review of which companies are ready to leave the shelter of State ownership.

Only Aer Lingus, next in line for flotation, looks certain to get clearance for take-off next year. Doubts surround the flotation plans of Newbank, the company to be formed from a merger of TSB and ACC Bank and which was aiming for a stock market listing next May. The readiness or suitability for flotation of a host of other State companies, including Aer Rianta, ESB, Bord Gais and Coillte, is also likely to come under scrutiny, market sources say.

"I would expect the Aer Lingus flotation to come on stream in 2000," one corporate finance adviser says. "The airline sector is still strong and the Government will be keen to get it done before the next slump in what is a very cyclical business.

"But the pulling of ICC has created a lot of uncertainty over TSB/ACC while Bord Gais and the ESB are not in a position to go down the flotation route at the moment."

The Minister for Public Enterprise, Ms O'Rourke, is expected to outline a timetable for the Aer Lingus flotation before Christmas. Advisers will then be appointed with a view to a sale before the end of next year.

It remains unclear whether the Government will opt for a full or partial privatisation but many observers believe it is likely to go for a 100 per cent sale of the airline, estimated to be worth £500£600 million (€635E762 million).

If and when Aer Rianta will follow Aer Lingus to the market is far less certain. Industry observers believe the situation surrounding the State airports operator is complicated by several factors including the fate of the Great Southern Hotel chain, proposals for a new terminal at Baldonnel and what should happen the regional airports.

Ms O'Rourke is still waiting for a report from Warburg Dillon Read, the London-based firm considering suggestions for Aer Rianta's future.

The report is expected to arrive on her desk any day, at which point the cabinet will discuss the best option for the group which could be worth as much as £1 billion.

The company itself has indicated that it favours floating 49 per cent on the stock exchange while it has also proposed the sale of the eight hotels in the Great Southern chain. But the sale of a smaller stake of 2530 per cent may be the more likely outcome and given the political decisions involved, few in the market expect a sale in the next 12 months.

Meanwhile, the flotation of TSB/ACC Bank looks more uncertain than ever.

Even before the current problems arose in the sale of ICC, market sources were expressing doubts that the Irish stock market needed yet another financial stock, particularly one that would belong firmly among the smaller companies in a sector where big is now seen as beautiful.

Other similar-sized financial stocks have not had a good year. First Active has performed dismally while Hibernian, faced with a languishing share price, has decided its shareholders' interests are best served by leaving the market altogether to become part of the much larger British firm, Commercial General Union.

But despite the lack of investor interest in either the financial or the small-cap sector at present, the Government position remains that the TSB/ACC flotation will go ahead sometime next year although the initial May target date appears to have been abandoned.

According to a spokeswoman for the Department of Finance, detailed planning for the merger and flotation continues and ICC's fate remains a separate issue. "The precise timing will be determined at a later date in consultation with the trustees of TSB and the boards of ACC and Newbank," she said.

Flotation of Coillte, whose future is also being considered by consultants, is far from certain. Problems expanding its land bank and the fact that forests in an early stage of growth are off the balance sheet would have to be overcome for the company to go to the market while environmental sensitivities may also come into play.

Among the other options are strategic alliance, staying as it is or leasing out land to private groups. The report, from AIB Capital Markets and Merrill Lynch, is expected before Christmas but a decision on the forestry company is unlikely before the new year.