Smart thinking: Dusan Mramor, Slovenia’s finance minister
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Privatisation seemed to have hit the buffers in the former Yugoslavia this year, with the failure of the sale of one state telecoms company and the leading bidder pulling out of the running for another.

In August, Slovenian Sovereign Holding, which manages some of the state assets lined up for sale, announced that private equity group Cinven had pulled out of the running for the acquisition of state-owned Telekom Slovenije, citing market conditions, regulatory issues and political complications. That same month, Carlos Slim’s America Movil and its subsidiary Austria Telekom quit the race for Telekom Srbija, saying Belgrade’s asking price was too high and the company’s profits too low.

The processes of selling the two state telcos provides “a textbook example of the difficulties” of privatisation in the region, says James Thornley, senior partner at KPMG in Belgrade.

A history of Titoist self-management and a more recent past of botched and suspect sell-offs have increased public and political wariness. While sales of breweries, fast-moving consumer goods makers and tobacco companies, among others, have often proved successful, state-owned bakeries still exist here.

Complaints that the sale of state assets is slow and politicised are common. However, despite the telecoms difficulties, the latest sell-offs seem to be gaining traction, with a number of deals sealed over the past year and others moving forward, albeit haltingly.

Hundreds of companies are for sale in one form or another as budgetary pressure and hunger for investment force governments’ hands.

“We are well on the way, but we have to do it smartly,” Dusan Mramor, Slovenia’s finance minister, told the FT. “We have to prepare companies for privatisation and privatise them in a process that doesn’t have the hiccups Telekom Slovenije had.”

Meanwhile, Aleksandar Vučić, Serbia’s prime minister, has closely associated himself with his country’s privatisation programme, which involves more than 500 companies. He has insisted the 58 per cent stake of Telekom Srbija on offer — the rest is owned by the company, employees and small shareholders — will not be sold for less than the €1.4bn level in a failed tender in 2011. This has not deterred bidders, including, ironically, Telekom Slovenije, in partnership with US fund Apollo Investment Corporation. This sale could be a curtainraiser for further privatisations. It is seen as one of the country’s most attractive assets, with commanding market shares in fixed-line, mobile and internet. Others being lined up are: Komercijalna Banka, Serbia’s second-biggest lender; insurer Dunav Osiguranje; and pharmaceutical company Galenika. If all goes well, Komercijalna Banka should be sold by the end of 2017, while the government has issued a tender for advisers on Belgrade airport, which may be offered under a concessionary arrangement.

Processes for other companies are less clear. The Serbian government has identified 17 large companies seen as important for the country or the region they are in, ringfencing them from creditors (often other state-owned enterprises) until restructuring plans are complete. They include Galenika and RTB Bor, a miner.

“These are complex privatisations, with serious financial, social and political implications,” says Daniel Berg, Serbia director of the European Bank for Reconstruction and Development, a participant in regional privatisation. “However, the government seems committed to continue with Telekom Srbija this year and to make good progress on Komercijalna Banka and Belgrade airport next year. As for the other large 17, we should see some processes completed this year and others next.”

One option could be to bring in new management with private equity-style incentives to turn companies around, and adding value before future sell-offs.

Slavko Caric, chairman of the management board of Erste Bank Serbia, says: “Investors can . . . produce [goods] at a fraction of the price of western Europe, with access to markets in Europe, Russia, Turkey, and China.”

An example of a successful strategic partnership is Air Serbia, once ailing JAT, Yugoslavia’s flag-carrier. The airline was relaunched in October 2013 after Abu Dhabi-based Etihad took a 49 per cent stake and management control. In 2014, the airline’s first full year of operation, revenue grew by 87 per cent and passenger numbers 68 per cent. Air Serbia now feeds into Etihad’s international network, giving the carrier reach across central and eastern Europe.

One problem, however, is that many of the 500-plus companies for sale are not commercially viable. About 70 have no staff, the Privatisation Agency says, while others have too many. There is compensation for those who lose jobs. Some workers only receive salaries sporadically because of cash flow problems, which many say is an argument for restructuring.

Past imperfect, present tense, future conditional

Critics of privatisation processes across the region say that it is still highly-politicised, with local and international politics influencing procedure. The Air Serbia deal has been criticised for lack of transparency. The recent removal of the head of Serbia’s Privatisation Agency, and the board of SSH and the head of a bad bank also dealing with privatisations in Slovenia have been blamed on such politicking.

Mramor says that this is not the case: SSH’s new board finalises its transition as a holding company, while the bad bank’s chief was sacked due to overpayment of wages, he told the FT.

Mramor is overseeing a privatisation process that has three separate streams: 15 companies listed for sale in 2013 as part of a programme to tackle the fiscal deficit; a further 91 categorised for sale, part sale, or retention in state hands; and a range of assets held by the bad bank.

Through these channels, several major companies have already been sold. In June 2014, Croatia’s Agrokor took control over retailer Mercator in a €323.8m deal; another Croatian company, Podravka, acquired bakery Zito in May 2015; and in October Heineken acquired brewer Lasko in a deal valuing the latter at over €220m.In June, the EBRD and Apollo agreed to buy bank NKBM for €250m, and in September 2014, Germany’s Fraport took a 75% stake in Ljubljana Airport for €177.1m. Airline Adria and its technical division are in the final phase before sale, while consultants are working on a new tender for Telekom Slovenije.

The government expects to complete a three-year management plan for the 91 companies under SSH by the end of the year, and will review the terms of privatisation. This includes the stipulation that private shareholders must not have a stake greater than the government’s 25%-plus-one-share in some companies, including top bank NLB, which some analysts say has deterred investors.

“Privatisation remains a divisive and politically charged issue in the majority of the Western Balkans states, can still trigger social and political changes throughout the region,” said Luka Oreskovic, associate partner at Spitzberg Partners, a consultancy actively monitoring privatisations in the region. “Yet it seems both in Slovenia and Serbia we might have political leadership finally up to the task of cutting the Gordian knot.”

The same cannot be said of Bosnia which held inconclusive talks with the IMFin November 2015 that were intended to lead to a more detailed plan for the sell-off of some state assets failed to reach a conclusion. The Fund, together with other IFIs, has been pushing a new economic reform programme led by the EU intended to stimulate growth, ease pressure on the budget, and erode SOE’s role as tools of political clientelism. Two state telecoms companies are potentially on offer, but the regional government which owns them is reluctant to sell more than 49%. The future of an aluminium smelter part-owned by governments in Sarajevo and Zagreb remains uncertain.

Croatia itself has moved further with privatisation than many of its neighbours, with a sell-off of shipyards before EU accession in July 2013 among the more recent activity. Assets in the pipeline include Croatia Airlines, and stakes in the motorway management company and energy utility HEP.

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