* Emerging Europe's $20 bln privatisation plans struggle
* Politics, credit conditions and issuance hamper
* Regional currencies up on hopes, some may be hit by delays
By Sebastian Tong
LONDON, Oct 26 (Reuters) - Revenue-hungry emerging Europe's plans to raise more than $20 billion next year through privatisation are stumbling over politics and pricing and amid the looming risk of a global glut of new equity issuance.
Failure of privatisation plans, some of which now look over-ambitious, could put pressure on some East European currencies and economists are wondering whether public share sales may be a better way forward.
Messy events such as the Romanian government's collapse and pre-election squabbling by Czech lawmakers are doing the region no favours in terms of attractiveness of its assets just as other problems threaten the privatisation agenda.
With markets on the mend, global policymakers are thawing asset sale plans frozen during the financial crisis. The hope is they replenish state coffers depleted by heavy stimulus spending and sharply reduced tax revenues.
The potential privatisation windfall is crucial for emerging Europe, which is grappling with rising public deficits and still anaemic foreign investment flows. Expectations of capital flows has supported recent gains by some regional currencies.
Poland, Turkey and Russia are among those divesting stakes in sectors ranging from banking to transport to energy but some early privatisation targets may no longer be realistic.
Last week, Poland said it would not reach its 2010 privatisation goal of $4.3 billion.
Still feeble credit conditions are capping the size of strategic bids, leaving a yawning gap between what buyers can offer and what governments will accept.
"Europe is going through a period of de-leveraging and global bank financing remains tight. Direct asset sales could face constraints as a result and would-be buyers face limits in what they can offer for these assets," said David Hauner, emerging Europe economist at Bank of America-Merrill Lynch.
Global syndicated loans -- a key source of corporate financing -- so far in 2009 remain only about half of the levels seen in the same period last year, Thomson Reuters figures show.
Europe is hardest hit by tight credit conditions with mergers and acquisitions volumes in the region down 55 percent in the year-to-date, a higher fall than Asia's 17-percent drop and the 39-percent decline in the United States.
Coupled with the deep recession in much of eastern and central Europe, some of these asset sales are floundering.
Poland is extending its deadline for final offers for the controlling stake in its state-owned bourse and plans to restart the tender for a stake sale in its utility Enea after the sole bidder pulled out this month.
The sale of loss-making Czech Airlines is in question after a sole bid of around $58 million.
Analysts say disappointment over privatisation delays could pressure regional currencies such as the Polish zloty.
"Many bullish Polish zloty comments are based on the assumption of forthcoming privatisation inflows, we see some risks that the euro/zloty moves a little bit higher in the near term," UniCredit said in a note.
Beat Siegenthaler, chief strategist emerging markets at TD Securities, agreed that Poland's currency was most vulnerable to setbacks in the privatisation drive which the government was counting on to help narrow its fiscal gap.
"If these sales don't materialise or are substantially changed, we could see the zloty weaken, Siegenthaler said."
"Privatisation has been important in terms of psychological support for the zloty because apart from that Poland is not very attractive. Investors have been less aggressive about taking a short position on the zloty -- it's dangerous to do so as at any one time there could be a large inflows from privatisation."
ONLY THE BRAVE
If direct stake sales prove tricky, public share sales may be a more lucrative way to divest state assets given the global equities rally this year.
Poland's state-controlled utility PGE is seen raising up to $2.1 billion through the sale of new shares in one of Europe's biggest initial public offerings (IPO) this year.
Significant new listings are only just reappearing on the continent though its bourses, like their global peers, have regained much of the ground lost last year.
Asia and Latin America have raced ahead with firms in China and Brazil, along with those in the U.S., accounting for 80 percent of the global IPOs this year, according to data from Thomson Reuters.
"The IPOs resurgence reflects the large inflows that are coming into emerging markets as a whole," said Kaspar Bartholdy, managing director emerging markets at Credit Suisse.
According to Thomson Reuters data, European IPOs have raised $900 million in the year so far, far less than the $37.8 billion raised in Asia ex-Japan and $24.9 billion in the Americas.
Europe is poised to catch up next year though the sheer volume of issuance expected from corporates and governments over the coming months will test investor appetite for the continent's eastern wing.
Meanwhile, politics has already up-ended the privatisation schedules laid out by some governments in the region.
The collapse of Romania's coalition government this month has cast doubt on the country's privatisation plans, which include the listing of Fondul Proprietatea, the state-owned 3.5-billion euro investment fund set up to compensate Romanians whose properties were seized under communism. The interim government in the Czech Republic has put on hold plans to sell state-owned Prague Airport, one of the assets put in a privatisation list drawn up by the previous government.
Ahead of elections next year, Czech lawmakers are seeking to ban the airport's sale.
"It is easy for opposition politicians to accuse governments of selling off the family jewels. This will prove to be a major obstacle for countries facing elections in the near term. Privatisation is not for the weak," said Koon Chow, senior foreign exchange strategist at Barclays. (Reporting by Sebastian Tong; editing by Stephen Nisbet )