The Slovenian government is set to sell a majority stake in the country’s largest lender, Nova Ljubljanska Banka (NLB), via a public listing.
Marko Jazbec, head of Slovenian Sovereign Holding (SSH), says the state investment company opted for the IPO route after a feasibility study with advisers Deutsche Bank.
“We reviewed all available options for the sale of NLB, including potential partnerships with large international banks or a sale to financial investors,” he says. “The conclusion was that an IPO offered the highest probability for a successful transaction and increased proceeds for Slovenian taxpayers.”
Marko Jazbec, SSH
NLB has been wholly state-owned since March 2013, when Belgium’s KBC Bank was forced by the European Commission to sell a 22% stake in the lender. A separate EC ruling, related to the state bailout of NLB in the same year, requires the Slovenian government to privatize the bank by the end of 2017.
Jazbec says the initial response from investors to the IPO proposals has been positive. “Investors like the progress on NLB’s restructuring in areas including reduction of costs, compliance with EC commitments and IT processes,” he says.
“The bank’s retail and corporate business mix, as well as its strong presence in south-eastern Europe, were also seen as quite favourable.”
In addition to insurance and fund management subsidiaries in Slovenia, NLB has a large presence in four Balkan markets – Macedonia, Bosnia, Montenegro and Kosovo – as well as a small operation in Serbia. Last year, the foreign subsidiaries accounted for more than half of total net income of €92 million.
No date has been set for the IPO, although Jazbec confirms that it will not be before the autumn. NLB will be dual-listed in Ljubljana and on an leading international stock exchange, as yet unnamed. It will be the first IPO on the Ljubljana Stock Exchange since June 2008.
A decision is also pending on the size of the holding to be sold in the IPO. The Slovenian government plans to retain a permanent 25% stake in NLB, which had total assets of €11.8 billion and total equity of €1.4 billion at end-December.
Analysts suggest that continued state involvement could dampen enthusiasm for the transaction. SSH is aware that to complete the IPO successfully “we have to consider very carefully what the future involvement of the state will be in the governance of NLB”, says Jazbec.
“We would like to self-limit ourselves based on international best practice in order to attract international investors.” Elena Romanova, senior expert for CEE banking at Raiffeisen, says NLB’s structure and background may also deter investors. “It is a cumbersome institution with a less than favourable track record,” she says.
“Pricing will also likely be an issue because there are few obvious comparables for the bank, plus the recent uncertainty around Slovenian banks will boost the risk premium.”
Slovenia’s banking sector returned to profit in 2014 following a €4.8 billion state recapitalization of the three biggest lenders – NLB, Nova KBM and Abanka – and the creation of a bad bank. Nevertheless, non-performing loans remain high, particularly in the corporate segment. At the end of December, bad debts still accounted for 15.3% of total lending at NLB.
Recent changes at the top of the bank may also weigh on investor sentiment. In February, chief executive Janko Medja resigned, citing differences of opinion with SSH relating to the privatization.
The president and two members of the supervisory board followed suit in April, just two months after their appointment. A joint resignation letter suggested that “individuals and interest groups ... are trying to control and lead the bank toward aims that are hardly correct”.
In late May, NLB was still working to recruit a new CEO. SSH says a new supervisory board will be in place by the end of June. Slovenia’s second-largest lender, NKBM, has already been privatized. US private equity group Apollo Global Management bought the Maribor-based bank last summer for €250 million. The deal was completed in April.
Gernot Lohr, a senior partner at Apollo, says the fund is targeting a 25% stake in the Slovenian market, which it sees as ripe for consolidation. Apollo has already bought Raiffeisen’s Slovenian operation – a deal that is due to be completed this June – and is eyeing the assets of other foreign lenders with smaller subsidiaries such as Sberbank, Hypo Alpe Adria, Intesa Sanpaolo and UniCredit.
“The Slovenian market is overly fragmented,” says Lohr. “In a country of only two million people, it will never be possible to make money with a 4% market share. It is therefore clear that several of the foreign players will want to exit, because they are realising that their current business model doesn’t work.”
Abanka is also due to be privatized under the EC’s agreement with Slovenia, although the government has until the end of 2019 to complete the sale. The lender is undergoing intensive restructuring following its merger with smaller state-owned lender Banka Celje and will not be ready for sale for at least a year, says Jazbec.
It is “far too early” to comment on the preferred route for the sale of Abanka, he says, adding: “Obviously it will depend partly on the success of the NLB transaction, as well as the fundamentals of the bank at the time.”