Thomas White Global Investing
Emerging Leaders

Emerging Leaders

January 2013

Zdenek Bakala, Czech entrepreneur and billionaire investor


Zdenek Bakala

Image Credit: © MF DNES – Nguyen Phuong Thao

“There is no real separation between the Czech and Polish coal sectors. For all intents and purposes, the border has disappeared.”

— Bakala in Financial Times


Successful entrepreneurs are often known for their uncanny ability to spot opportunities where others see chaos. But for Czech entrepreneur and billionaire investor Zdenek Bakala, the refusal to follow the beaten track was not just a business strategy. Ingrained in him as a young boy was an unbridled faith, growing up in the shadow of the failed 1968 Prague Uprising for human rights and civil liberties. Convinced that communism offered little to nurture human aspirations, be it in life or in business, Bakala was determined to acquire higher education, which would have remained a dream had he chosen to live in the communist country. True to his style, Bakala staged a dramatic escape from what was then known as Czechoslovakia to the shores of America, a gripping tale of determination and risk-taking, which eventually saw him taking the reins of private equity company BXR Group – whose varied interests range from natural resources and property to media, transport, and brewing.

Fresh out of the MBA program at Dartmouth’s Tuck School of Business, Bakala had short stints with JP Morgan in New York and another Wall Street firm. However, the real breakthrough for the man who always held his mother country close to his heart came when Credit Suisse First Boston asked him to help set up their Czech branch. Around this time, the former Soviet bloc countries were undergoing a transition phase to a market-led economy. Bakala’s business education in the U.S. came in handy as he advised the then government of the Czech Republic on many transactions such as the sale of national automobile company Skoda to Volkswagen. Having learned the tricks of the trade, Bakala raised start-up capital from former colleagues and other investors to establish his first entrepreneurial venture, Patria Finance. With this, he introduced his fellow countrymen to the concept of investment banking. Patria was later sold to Belgian banking group KBC in 2001, which gave Bakala a taste of big money.

Around 2004, Bakala used the money from selling Patria to set up a private equity fund, RPG Industries and then began to scout for opportunities in the Czech market. The budding entrepreneur could sense that there was value to be unearthed in the country’s coal manufacturing sector, which was being privatized in parts by the government at that point of time. As luck would have it, the promoters of the Karbon Invest Group, which had owned OKD, the then leading Czech coal mining group among other businesses, decided to sell off their 100% stake to a group of investors led by Zdenek Bakala. In hindsight, it was perhaps a big bet for a freshly-minted businessman to put his money in the Czech energy sector, which was primarily dependent on polluting coal for its energy supplies.

However, OKD was not the behemoth that employed more than 100,000 people during communist times. What Bakala had acquired was a much leaner and meaner company with about 30,000 workers on its rolls. Still, “the management culture of the company was very much in an unreformed socialist style,” he once told the Financial Times. Bakala set out to make the company “more entrepreneurial” in its work culture and orientation by pruning its operations to make it a true blue coal and coking company. Bakala’s investment vehicle RPG formed a Netherlands-based holding company New World Resources (NWR) to consolidate the company’s far-flung coal assets. The restructuring also saw the creation of several stand-alone businesses such as rail and logistics company Advanced World Transport, clean energy company Green Gas International, and RPG Real Estate, all coming under the umbrella of BXR Group in which Bakala is the largest single shareholder with a non-controlling 50% stake.

As it stands now, NWR may appear to be a strange animal: born in the Czech Republic, incorporated in Amsterdam, with listings in London, Warsaw, and Prague. The company, which owns coal mines in the Czech Republic and Poland, spread its wings to Belarus and the Ukraine, coming closer to the goal of becoming a minerals powerhouse in eastern and central Europe. BXR Group also holds a 25% stake in Ukrainian iron ore producer Ferrexpo, while NWR is preparing to invest more than €500 million in a big coking coal mine project in southern Poland. Notwithstanding Bakala’s diversified businesses, NWR, which controls Czech coking coal miner OKD A.S., remains the jewel in his crown.

Rated one of the richest men in the Czech Republic, Bakala acknowledges that, “Everything I’ve been able to achieve is due to my American education and especially Tuck.” As a mark of gratitude, the Czech industrialist was endowed a Professor of Management faculty chair at his alma mater. A convinced capitalist, Bakala champions the cause of free markets, and lobbies with his counterparts in other Eastern European countries to push their governments to adopt faster economic reforms.

Like miners braving the chill inside a decaying coal pit, Bakala continues to put his faith in tangible assets despite headwinds facing the industry. Mining, as he knows too well, is a cyclical business after all.

 

 

 

 

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