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Inside Out: Privatization of Komercijalna Banka

Inside Out: Privatization of Komercijalna Banka

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On March 5, 2020, CEE Legal Matters reported that Kinstellar had advised Nova Ljubljanska Banka d.d. on the conclusion of a share purchase agreement with the Republic of Serbia for the acquisition of an 83.23% ordinary shareholding in Komercijalna Banka a.d. Beograd. Serbia’s AP Legal and Prica & Partners advised the Government of the Republic of Serbia on the privatization.

The Players:

Counsel for Nova Lubljanska Banka d.d.: Denise Hamer, Head of C/SEE Asset Solutions, Kinstellar, and Branislav Maric, Managing Partner, Kinstellar Belgrade

Counsel for the Republic of Serbia: Aleksandar Preradovic, Managing Partner, AP Legal

CEELM: Denise, let’s start with you. Why and when were you selected by Nova Lubljanska Banka to advise it on this deal?

Denise: I have had a long-standing relationship with Nova Ljubljanska Banka, having advised or cooperated with the bank and many of its managers and employees on a number of high profile restructuring matters in Slovenia and the region, including Istrabenz, Pivo Lasko, and Mercator, as well as ongoing finance matters. I first worked with Blaz Brodnjak, now the CEO of NLB, as colleagues at Austria’s Bawag PSK, winding up the bank’s Slovenian operations following the acquisition of the bank by Cerberus Capital. In addition, NLB Serbia is located next door to Kinstellar’s Belgrade office and although this was the first NLB mandate for Kinstellar, NLB Serbia was well aware of the firm and Branislav, Kinstellar’s Serbia Managing Partner.

CEELM: What about you, Aleksandar? Why did the Republic of Serbia reach out to you and your firm?

Aleksandar: We became involved in the Komercijalna Banka transaction as part of advisory consortium led by Lazard Freres. The advisory consortium also included KPMG and Prica & Partners. The consortium was selected as the highest-ranking bidder in the tender for the provision of advisory services in the privatization process of Komercijalna Banka that was organized by Serbian Ministry of Finance.

CEELM: What, exactly, was the initial mandate when you were each retained for this project, at the very beginning? Denise?

Branislav: The initial mandate was for the comprehensive representation of NLB as a bidder for and potential acquirer of Komercijalna Banka.  The initial mandate did not change materially, although as could be expected, it expanded to address ad hoc issues that arose from time to time, as in all transactions.

CEELM: What about you, Aleksandar? What was your initial mandate?

Aleksandar: The initial mandate involved providing legal advisory services in connection with the sale of the shareholding of the Republic of Serbia in the bank via a tender process. The initial mandate (as defined in the Request for Proposals) generally involved a more-or-less standard set of legal services in a privatization process, such as, for example, a full-scope legal due diligence of Komercijalna Banka and its subsidiaries in Serbia, Bosnia and Herzegovina, and Montenegro, assistance with the structuring of the sales process, drafting the tender documentation (including requests for expressions of interest and public invitations, the information memorandum, NDAs, the SPA, and other ancillary transaction documents), and negotiating the SPA with short-listed bidders and then with NLB as the winning bidder in the tender.

However, at the very outset of our engagement, the scope of services expanded to involve assistance with the exit of the international finance institutions – the EBRD, IFC, DEG, and Sweedfund – from the shareholding structure of Komercijalna Banka, which was a pre-requisite for the selling of a controlling interest in the bank in a privatization process. The fact that the Komercijalna Banka Group operates in three different markets as well as under a dual regulatory regime in the territory of Kosovo added additional level of complexity during the preparation for and implementation of the transaction.

CEELM: Who were the members of your teams, and what were their individual responsibilities?

Denise: I led Kinstellar’s team along with Branislav. In addition, the team included Belgrade colleagues Tijana Arsenijevic, Nikola Stojiljkovic, Dragana Bajic, Petar Grozdanovic, Milan Radonic, Andreja Vrazalic, Selma Mujezinovic, Una Draganic, and Ksenija Sorajic.

Aleksandar: I was the leader of legal team in this transaction, in charge of key legal work streams during the entire process. In addition to myself, my colleague Dusan Preradovic was involved mainly during due diligence phase of the process (for real estate matters). During the entire process, we worked closely and in full co-ordination with a great team from Prica & Partners led by Partner Danica Gligorijevic.

CEELM: Denise, can you please describe the deal in as much detail as possible, including your (and Kinstellar’s) role in helping make it happen.

Branislav: The transaction entails the acquisition by NLB, Slovenia’s largest bank group and the only regional financial institution listed on the London Stock Exchange, of Komercijalna Banka, including its subsidiaries in Montenegro and Bosnia and Herzegovina, as well as branches of the bank in the territory of Kosovo, through the purchase of 83.23% of its shares. Although on its face this is a straightforward corporate share deal, it is actually a quite complex undertaking.  Both parties are regulated financial entities located in multiple jurisdictions, and therefore the acquisition involves substantial regulatory input from all relevant jurisdictions’ (and EU) Central Banks and Competition Authorities (and consideration of UK Securities law). As well as corporate and regulatory support, the acquisition and integration of a going concern requires labor, technology, real estate, finance, securities, restructuring, and tax advisory. Finally, there are added complications involving Covid-19, including the imposition of Central Bank emergency measures. As a full service regional law firm, Kinstellar’s team supported all of the above legal aspects of the transaction, both internally and through project management of 3rd party local law counsel.   

CEELM: And now you, Aleksandar. What was your role?

Aleksandar: I believe that the client’s team is best placed to provide an objective view as to our role in helping the deal happen.

CEELM: What’s is the current status of the deal?

Branislav: The transaction currently is proceeding through the requisite regulatory approval and integration processes.

Aleksandar: The SPA was signed on February 26, 2020. Irrespective of challenges posed by COVID-19 the parties have managed to meet all relevant transaction milestones thus far. Currently we are in the process of fulfilling the last set of regulatory related conditions precedent – obtaining clearance from the CEB and NBS – so I would say that we are running the last 100 meters of this marathon. If everything goes as planned closing of the transaction is expected to happen in the last quarter of this year.

CEELM: What would you each say was the most challenging or frustrating part of the process?

Denise: As Tolstoy sort of said, all happy transactions are challenging in their own way. The Share and Purchase Agreement was executed on February 26, and by the second week of March most of the C/SEE region and Western Europe were in COVID-19 lockdown.  As can be imagined, this led to some unanticipated and unique challenges. That being said, all parties on both the seller’s and the buyer’s side have been extremely professional and accommodating. In addition, the relevant authorities have been quite creative in working around COVID-19 obstacles. 

Aleksandar: Each privatization process is by its very nature challenging. In this particular case, this was even more true than usual, taking into consideration a number of different factors, such as the significance of Komercijalna Banka in Serbia’s banking sector, the number of stakeholders involved, the regulatory aspects of the Komercijalna Banka group’s operations in a number of jurisdictions, and so on. All these factors required a lot of time and careful structuring. In addition, the fact that three bidders submitted binding bids required a lot of work (and steady nerves) during the preparation of the final draft of the SPA based on mark-ups received during the first stage of the tender process.    

CEELM: Was there any part of the process that was unusually or unexpectedly smooth/easy?

Branislav: All things considered – (a) the inherent complexity of transaction, (b) the multitude of jurisdictions and authorities that were involved, and (c) the COVID-19 crisis – the transaction proceeded in a remarkably smooth manner. As noted above, all parties on both the seller’s and the buyer’s side have been united in achieving a single objective. We were fortunate to have spent quite a lot of time together in Belgrade during January and February in face-to-face negotiations so we could work effectively remotely.   

Aleksandar: My overall impression is that entire process – although it was very challenging – went more smoothly than I had expected. I guess it has to do something with my innate pessimism. If I were to choose a part that exceeded my expectations, it would be the overall co-operation with our client’s and the NLB’s team during the transaction.

CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?

Denise: The final result exceeded our initial anticipation as our client NLB won the auction. Accordingly, the initial mandate has been extended to encompass the integration of the banks. And naturally, with this transaction creating an NLB regional powerhouse presence, we look forward to ongoing future cooperation.

Aleksandar: To be perfectly honest the final result – that is, the fact that SPA has been signed and that the transaction is going to happen – exceeded my initially low expectations based on experience from the past (for example, failed attempts to privatize the state-owned incumbent telecom operator). In that context participation in a successful privatization of this scale in the present context is really rewarding, irrespective of the increased scope of work in comparison with the one anticipated at the outset of the process.   

CEELM: Denise, what specific individuals at NLB instructed you, and how did you interact with them?

Denise: This is a bit like the Oscars; we do not have room or time to name all of the terrific people at NLB with whom we have worked. Briefly, however, we have been very fortunate to work day to day with a stellar NLB team led on the legal side by Marko Jeric, the General Counsel, and led on the commercial side, by Managing Director Ursula Kovacic Kosak, and Guy Stevens, formerly of UBS, who joined NLB as consultant financial advisor on this transaction. From management, we have been steered primarily by Blac Brodnjak, the CEO of NLB, and Archibald Kremser, the COO. Our interactions with the core team have been hourly by phone, text, WhatsApp, and email (if there is an untapped method of communication, I am sure we will soon find it). We probably speak with each other more than with our spouses or children, which is saying quite a lot considering that everyone has been housebound for months.

CEELM: And you, Aleksandar? What specific individuals at Serbia’s Ministry of Finance instructed you, and how did you interact with them?

Aleksandar: During the entire transaction we and colleagues from Prica & Partners have been in direct daily communication with Filip Sanovic, the Deputy State Secretary in the Ministry of Finance in charge of the financial sector, Vuk Delibasic, Special Advisor to the Minister of Finance, and Olivera Zdravkovic, special advisor in the Ministry of Finance. The co-operation with the seasoned team of Ministry of Finance went smoothly notwithstanding various challenges we all faced during the privatization process. I genuinely enjoyed working with our client’s teams as well as with other members of the advisory consortium and dare to say that our relationship evolved over the last 18 months from a purely professional one into a real friendship.

CEELM: How would you describe the working relationship with each other on the deal?

Denise: Kinstellar has enjoyed an excellent working relationship with the seller’s advisors. Aleksander Prerodovic of Prica Partners combines legal acumen with commercial pragmatism and is a master of client management. In addition, we work closely with the seller’s financial advisors, Lazard and KPMG. As noted, we all spent quite a lot of time together in Belgrade directly after NLB’s successful bid, negotiating the SPA and ancillary documentation. The negotiations transpired through weekly several day meetings over the period from January 9th until the execution of the Sale and Purchase Agreement on February 26th. The time period was relatively condensed and efficient as all parties shared a single objective (we also shared Sacher Torte from Vienna and Macarrons from Paris, due to our international teams). We have now shifted to other modes of communication, but they are continuous.     

Aleksandar: Co-operation with Kinstellar was combination of personal meetings (mainly during negotiations of the SPA), e-mails, and phone calls. The final negotiations took a couple of weeks, which I believe is nothing unusual in transactions of this level of complexity.

The overall co-operation with Kinstellar and all other advisors involved in the transaction was very good and constructive which at the end of the day enabled us and our respective clients to overcome the various challenges and complexities that we all faced during transaction.   

CEELM: How would you describe the significance of the deal?

Branislav: The acquisition of Komercijalna Banka by NLB creates the third largest bank in Serbia and a regional juggernaut. Quoting NLB CEO Blaz Brodnjak: “NLB’s operations in Serbia will be by far the largest outside of Slovenia, underlining the meaning of the respective transaction for the regional systemic financial institution.” Prior to COVID-19, this was already a marquee transaction. With the consolidation of the financial sector that is likely to follow the COVID-19 crisis, this transaction gives NLB a strong platform for continued strategic growth.     

Aleksandar: The privatization of Komercijalna Banka is the largest-ever privatization in the Serbian financial sector, both in terms of transaction value and the strategic importance of Komercijalna Banka for the Serbian system. It is a transaction that will significantly change the Serbian banking system in the years to come.

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.