Sun, Jan
60 New Articles

Privatization: A Driving Force in the Adriatic


We asked Uros Ilic, the Managing Partner at the ODI Law Firm, to give us an update on the privatization process in the South Eastern Europe markets the firm covers, as well as his expectations for the future. Ilic leads ODI’s privatization practice, which is coordinated by Partners Matjaz Jan in Slovenia, Branko Iliz in Croatia, Milos Curovic in Serbia, and Gjorgji Georgievski in Macedonia.


Let’s start with ODI’s bona fides. What experience does the firm have working on Privatizations across Slovenia, Croatia, Serbia, and Macedonia?

Uros Ilic, ODI Law Firm

U.I.: Privatizations have seen a reboot in the last few years, as South-Eastern European countries have been selling their assets in order to counter increases in their debt/GDP levels. The trend is especially visible in the SEE region, where countries in general have retained ownership of a relatively high share of their domestic companies even after the first privatization wave in the 90s. Privatizations thus represent a significant portion of the region’s M&A activity and consequently also a significant portion of ODI’s transaction experience.

ODI has participated in many of the recent multi-million privatizations, the most prominent being the ongoing privatization of Telekom Slovenia, Slovenia’s largest telecommunication provider. Its anticipated purchase price is more than EUR 1 billion, setting it up to be the biggest privatization as well as the biggest M&A transaction in the country’s history. This is a landmark transaction in which ODI offices in all of its 4 jurisdictions have participated.


What major privatizations in those markets are expected to be completed in 2015? 

U.I.: Regarding Slovenia: On May 9, 2013, the Slovenian Government adopted the decision of the National Assembly’s consent for privatization of a number of state-owned companies. Aerodrom Ljubljana, Fotona, and Helios have already been sold. The privatization processes of Telekom Slovenia, NKBM, Adria Airways, Adria Airways Tehnika, Aero, Cinkarna Celje, Elan and Zito are currently ongoing, while the list also includes Gospodarsko razstavisce, Paloma, Terme Olimia and Unior.

Telekom Slovenia’s future will be decided in the coming weeks. Although the prime minister is set on selling Telekom Slovenia, and a failure to conclude its privatization process might diminish Slovenia’s international reputation in financial markets, the transaction still might not close, as a significant share of the public as well as members of parliament oppose the sale and are actively trying to block it, for various reasons. In addition, of course, the offered price might not meet expectations. The other Slovenian company closest to being sold is NKBM. The Slovenian Sovereign Holding (SDH) is selling a 100% share of the bank on behalf of the Republic of Slovenia and received binding offers on January 20, 2015. NKBM was brought back from the brink of collapse with a state-funded EUR 870 million bailout in late 2013 and is intended for privatization by the end of 2016 at the latest. After offloading non-performing loans onto the Bank Asset Management Company, the bank is now financially solid.

The Croatian government has categorized its state-owned companies in the following four categories: The first is the 27 companies with strategic importance for the state, mainly in the infrastructure and energy distribution sector, that are not meant to be privatized. The second is companies with special importance for the state and in which the state owns more than 55%. The third group includes six companies with special importance for the state in which the state owns less than 50% of the shares. And the fourth group includes 558 companies with no special importance for the state, of which 41 are in the majority ownership of the state and 90 are expected to be privatized in 2015. Currently, only two privatization procedures are ongoing: the process of the Luka Vukovar Ltd. seaport company’s public call for offers has been initiated, while the Koncar electricity company’s privatization procedure has just begun and is in the early stages.

Serbia has recently adopted a new privatization act, which is introducing asset deals and strategic partnerships and is to provide legal grounds for the privatization of 502 Serbian state-owned companies, of which 160 have been in the process of organizational and financial restructuring for quite some time. These companies include the Simpo Vranje furniture company, the Prva Iskra, Zorka, Petrohemijam, and Azotara chemical companies, the Krusik and Magnohrom special-purpose production companies, and several others. Companies in line for privatization also include the Galenika pharmaceutical company, the HIP Azotara fertilizer manufacturer, the Serbian Lottery, and a large copper mine at Bor. The mandatory deadline for privatization of these companies is rather ambitiously set for December 31, 2015. In the near future, the focus will be on privatization of the most profitable companies, such as Telekom Serbia, parts of the Elektroprivreda Srbije electricity company, Belgrade’s Nikola Tesla Airport, and the Dunav osiguranje insurance company.

The privatization process in Montenegro is in its final phase. The privatization procedures of the Dr Simo Miloevic Health Institute and assets of Montenegro Airlines are considered to be the most significant and are expected to materially upgrade the quality of Montenegro’s tourist offering. Preparations for publishing public tenders for privatization of the Montecargo rail transport company, Montenegro Airlines, the Ulcinj Riviera hotel and tourist complexes, the Institute of Ferrous Metallurgy, and the Electrode Factory in Pluzine are underway. Tourism is also the sector of most companies being privatized through public-private partnerships.

Due to the specific administration and division in Bosnia and Herzegovina, privatization has been conducted separately in its two entities: the Republic of Srpska (RS), and the Federation of Bosnia and Herzegovina (FBiH). In RS, most of the few profitable state-owned companies have already been privatized and an official privatization plan for 2015 has not been adopted yet. It seems likely that the plan for 2015 will involve, first and foremost, actually completing the privatizations that were intended for 2014 (as only five of the 33 companies included on that year’s state-owned company privatization plan were actually privatized). Thus, the focus will presumably be on privatizing four strategic companies: “Fabrika motora za specijalne namjene” a.d. I. Sarajevo, “FAMOS – Fabrika motora“ a.d. I.Sarajevo, “Kosmos” a.d. Banja Luka, and “Krajinapetrol” a.d. Banja Luka. All of these companies have been operating at a loss, however, so their business futures are uncertain.

In FBiH, the goal of privatizing a number of companies has been announced, including the Sipad wood processing and timber company, the Energoinvest engineering companies, the Bosnalijek pharmaceutical company, the Energopetrol oil company, and several others.

In Macedonia, the process of privatization is almost complete. Out of the larger scale transactions, only the privatization of JSC Macedonian Power Plants is ongoing – and it is on hold. The media reports indicate that the government has engaged a consultant for appraisal of the value of the company; however, no further details as to the status of this process are available.


Is there a difference between the countries that you cover in terms of sophistication of the privatization processes?

U.I.: No, there are no significant differences between the countries regarding the sophistication of their privatization processes. The countries have a joint legal heritage and have utilized similar privatization methods. However, the overall level of privatization is a different story. The privatization processes in Macedonia and Montenegro are almost complete, which leads to the conclusion that political will and public support are at least as important, if not more important, than the sophistication of the legal instruments.


Voucher privatization was once the method of choice in CEE. Is voucher privatization the most common form of privatization in the former Yugoslavia as well? 

U.I.: Voucher privatization was popular in the 90’s, but it has been abandoned in most SEE countries since it was determined to be a method that failed to ensure good enterprise management. The current wave of privatization is mostly executed through methods such as securities disposal via public offering (non-binding offer), public auctions, public calls for tenders, and direct sales of securities. Asset deal and strategic partnership methods are also used, but are less common. And as a significant share of privatized companies struggle financially, securities disposal is often also combined with restructuring and capital increase procedures, which makes law firms specialized in restructuring and insolvency especially valuable for handling these complex procedures.


The potential for corruption or self-dealing in privatizations is well known, and in some markets has been an unfortunate reality. Can potential investors proceed with full confidence in the markets you cover, or are cronyism and behind-the-scenes deals still a reality?

U.I.: Corruption risks cannot be excluded as some of these countries still rank relatively high on the corruption indexes. Slovenia placed 39th out of 174 countries on the Corruption Perception Index 2014 by Transparency International. Croatia placed 61st, Macedonia 64th, Montenegro 76th, Serbia 78th and Bosnia and Herzegovina 80th. A former Croatian Prime Minister was convicted and sentenced to prison due to corruption in the majority share sale of the INA oil company, and a Serbian businessman was arrested for alleged abuses in the privatization of a road construction and maintenance company; therefore the risk was and still is indeed real. All of these countries have made fighting corruption a priority, and we anticipate circumstances will improve even further in the near future.

This Article was originally published in Issue 2.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Our Latest Issue