Tallink amounts to one third of the Tallinn stock exchange

The largest shareholders of Tallink are Infortar with a stake of 38.03 percent and the enterprises in the Citigroup system, related to a private capital fund, Baltic Cruises Holding (BCH), Baltic Cruises Investment (BCI) and Citigroup Venture Capital International Growth Partnership (CVCI), which control a total of 23.68 percent of shares. The entire process may lead to a mandatory takeover offer of all shares, which in turn could end with Tallink’s withdrawal from the stock exchange.

Tallink is one of Estonia’s largest enterprises and the most important enterprise of the Tallinn stock exchange, which means that its withdrawal would massively harm the local securities market.

The price of Tallink shares went up eight percent on July 20, to 1.07 euros, which brings the company’s market value to 718 million euros. The market value of Estonia’s listed companies amounts to approximately 2.5 billion euros as of July 20, which means that Tallink amounts to nearly one third of the total value of the stock exchange.

Tallink’s shares amount almost as much of the stock exchange turnover. Last year the shipper provided 38 percent of the 159 million euro total turnover of Tallinn stock exchange. Tallink has slightly over 11,000 shareholders, which is more than double the number of shareholders of the next largest listed firms (LHV, Olympic EG and Tallinna Vesi).

Tallink’s last year’s turnover was 938 million euros, second only to Ericsson Eesti, Estonia’s only company with billion-euro turnover.

Since the shipping firm provided no more explanations to the July 20 stock exchange notice, small investors can only speculate about what will come next. There are several options.

Option 1

Infortar is willing to sell its shares.

This is the option investors currently consider the most likely. There are speculations that Infortar with its major owners Enn Pant, Ain Hanschmidt and Kalev Järvelill is selling its Tallink stake in order to use the income from the shares (approximately 300 million euros) for the construction of the Tallink City shopping and entertainment center planned in the Lasnamäe district of Tallinn.

This version seems improbable, since Tallink City would not be built at once and such projects are usually realized for borrowed money. Infortar, however, is an investment firm, which makes direct rather than portfolio investments, which would raise the question, immediately after the sale of the Tallink shares, where the money should be placed. If it is simply deposited in a bank account, the depositor has to pay the banks.

Moreover, Infortar uses the Tallink brand in its other subsidiaries, e.g., Tallink hotels, Tallink Takso etc. If Infortar should sell Tallink, it would obviously sooner or later give up using the brand on other businesses. Infortar’s other enterprises also have close client relationships with Tallink and are more or less integrated.

Option 2

Both Infortar and investors related to Citigroup want to sell.

Since Baltic Cruises, which is related to Citigroup, is known as a private capital firm, it would find investing the income from the sale (170 – 200 million euros) somewhat easier than Infortar. Moreover, there should be closed funds (at least two), which have to close their investments at some moment and return the money to investors.

In case of this and previous option one would ask, who is the buyer capable of paying up to half a billion euros for the Tallink shares or in case of total takeover 700 – 800 million (or even one billion).

The Chinese could be among potential investors. The Industrial and Commercial Bank of China established a ten billion euro fund last November for financing investment projects in Central and Eastern Europe. The fund was opened in Riga by China’s Prime Minister Li Keqiang and its purpose is to finance infrastructure, high technology and consumer goods sector enterprises for a total volume of 50 billion euros.

Option 3

Investors related to Citigroup want to sell their shares.

This is the most likely version. As we know, Baltic Cruises Holding and Baltic Cruises Investment are closed investment firms similar to private capital funds which place the money of their partners and investors. Tallink has been linked to Citigroup even before entering the stock exchange in the end of 2005 and going public used to be the precondition for receiving loan from Citigroup.

Baltic Cruises increased its stake five years ago, in the end of 2015, when Infortar sold the investment firm 28.1 million Tallink shares for 1.1 euros per share, 42 percent above market price. Besides Infortar, the investment fund Amber Trust sold 32.15 million shares and the investment fund Firebird one million shares to the same firm.

Thus Baltic Cruises acquitted from three firms a total of 52.45 million Tallink shares worth 58 million euros.

Average duration of investments of such funds is generally five to seven years; it is therefore logical that the funds may now be considering selling the Tallink shares.

Who could be the buyer? The most likely buyer is Infortar, which should be ready to pay an initial 200 – 250 million euros, but that would probably be accompanied by a mandatory takeover offer to all shareholders, so that the total amount may reach half a million euros.

It is unlikely, however, that Infortar would buy out the entire enterprise and leave the stock exchange. As said, it would cost the firm too much. Infortar’s annual report shows that the firm’s free funds at the end of 2016 amounted to 23 million euros and its current assets amounted to 50 million, which should suffice for a bank loan of the necessary amount.

In order to buy shares worth half a billion Infortar would apparently have to sell some property. It is more likely that they would make the small shareholders a takeover offer the latter would not accept.

Option 4

A totally new core investor would step up.

This version cannot be ruled out either, but it is very difficult to predict, who it could be.