Private Equity: Funds take small steps
Fund Management: AC-Nalozbe blazes a trail
Stock Exchanges: Zagreb puts its best foot forward
LIFE IN THE Balkan region is full of ironies – some sweet, some bitter. Having spent much of the 1990s falling out with each other, in the present decade the former Yugoslav republics have realized that a resumption of intra-regional trade and investment benefits all parties involved.
“There’s no doubt we’re seeing an economic trickledown effect from Slovenia to the rest of the ex-Yugoslavia region,” says Michael Glazer, director of Croatian investment banking boutique Auctor.
Although Slovenia was the first to break away from Yugoslavia in 1991 and spent most of the 1990s disassociating itself from its southern neighbours, it now unashamedly brands itself as the gateway to the Balkans, and Slovenians were among the very first foreigners to invest in Serbia after former Yugoslav president Slobodan Milosevic was ousted.
As the richest of the former Yugoslav states and the only net exporter of capital in the region, Slovenia has been quick to recognize the advantage of moving production from relatively expensive domestic bases to cheaper sites in neighbouring states.
For example, to date more than 300 Slovenian companies have set up in Serbia, committing almost €700 million. “Slovenia is under increasing pressure to maintain competitiveness now it is in the European Union,” says Jasna Matic, director of the Serbia Investment & Export Promotion Agency (Siepa).
Because of a preferential tariff regime with Russia – Serbian imports to Russia only attract 1% duty – Matic says Serbia is a natural choice for Slovenian companies looking to export to the increasingly lucrative markets of Russia and the Commonwealth of Independent States.
Among those Slovenian companies that have recently set up in Serbia is white goods manufacturer Gorenje, which in November opened a €20 million factory to make refrigerators and freezers in Valjevo. Some 25% of Gorenje’s production is now based outside Slovenia; it also has a factory in the Czech Republic.
Retail investors
In the financial services sector Belgrade already boasts three Slovenian brokerage houses – AC-Broker, Ilirika and Publikum – which have been a major conduit for Slovenian portfolio investment into Serbia, initially by institutions, but increasingly by retail investors as well. “We’ve seen a lot of retail interest from Slovenia this year. There are a lot of people with €25,000 to €50,000 to invest,” says Nenad Gujanicic, a broker at AC-Broker. He adds: “Slovenians arguably understand the Serbian market better than investors from other countries and they believe it has good long-term potential.”
Given their local market knowledge combined with superior international business connections, Slovenian brokerages are often chosen to act as advisers on mergers and acquisitions in Serbia. Beopublikum, for example, the Belgrade subsidiary of Slovenia’s Publikum investment banking group, advised Belgium’s Interbrew on its €327 million takeover of Serbia’s largest brewery, Apatin, in September 2003 – the biggest single investment in Serbia at the time. Ironically, Interbrew beat off competition for Apatin from Slovenian brewer Lasko.
| Slovenia’s stock rises |
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| Serbia’s steady performance |
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| Source: Bloomberg |
Meanwhile, Nova Ljubljanska Banka (NLB) has bought Continental Banka Novi Sad and LHB Banka Beograd. “It’s a natural progression for NLB to buy into Serbia as the bank operated here during the Yugoslav period,” says Vladislav Cvetkovic, lead privatization adviser at the Deposit Insurance Agency. Meanwhile, Slovenian insurer Trglav is said to be considering the purchase of Serbian insurance company DDOR, which is being privatized.
Among the Slovenian retailers, supermarket group Mercator has already spent €38 million building a hypermarket in Belgrade. It also recently announced that it was to acquire a 76% stake in Serbian retailer M-Rodic for €152 million, with an option to purchase the remaining 24% of the company over the next two years. Mercator now controls about 8% of the Serbian retail food market – the latest step towards its strategic goal of becoming the leading food retailer in southeastern Europe.
It faces stiff competition from Croatia’s leading food retailer Agrokor, however, which recently announced a strategic alliance with its Serbian equivalent, Delta. Zoran Mitic, director at consultancy South East Europe Capital Partners, believes that such tie-ups between ex-Yugoslav companies will become increasingly common. “We’re starting to see a strategic consolidation process, whereby national champions are linking up to create regional champions,” he says.
On the portfolio investment front Croatians have been slower to invest in Serbia than their Slovenian counterparts but the pace is beginning to pick up. “Croatian investors started to be really active after the summer,” says Igor Markicevic, chief analyst at Croatian brokerage Fima International in Belgrade. He adds that the sale of Croatian drug company Pliva to Barr Pharmaceutical of the US earlier this year freed up cash, which has now found its way onto the Belgrade Stock Exchange.
Welcome investment
So far at least the public reaction in Serbia to investment from Slovenia and Croatia has been overwhelmingly positive. “There’s been no negative sentiment towards Slovenian and Croatian investment here in Serbia,” says Matic at Siepa. She adds: “As long as we have a high unemployment rate, any investment that creates jobs is welcome.”
Milan Parivodic, Serbia’s minister of international economic relations, emphasizes that the country is keen to work with its former partners from the Yugoslavia era. “We intend to be a good, honest reliable neighbour to all the surrounding states, because that’s good for business,” he says.
But while acknowledging that investment from both Croatia and Slovenia has been a major boon for the Serbian economy, he cautions: “Up until now it has very much been a one-way street – we’d clearly prefer it to be a two-way street. Both Croatia and Slovenia are relatively closed markets compared with Serbia.” He adds: “We firmly believe that regional economic integration is of utmost importance – we’re in favour of free trade, but in practice, not just in theory.”
Private Equity: Funds take small steps
Fund Management: AC-Nalozbe blazes a trail
Stock Exchanges: Zagreb puts its best foot forward