Capital Markets in Slovenia – Early Signs of a Modest Recovery

Capital Markets in Slovenia – Early Signs of a Modest Recovery

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Contrary to initial negative expectations, the post-Brexit shockwaves hardly brushed upon the Slovenian capital markets, which seem to be slowly gaining momentum.

Current Trends and Developments 

Forecasts for moderate upward trends may partly be linked with the latest report of the Institute of Macroeconomic Analysis and Development (IMAD), which raised the GDP growth anticipations for 2016 from 1.7% to 2.3%, keeping them at a rather steady level of 2.9% and 2.6% for 2017 and 2018, respectively. According to IMAD, the favorable GDP growth prognosis revolves around increased exports and domestic consumption. The buzz surrounding two of the major blue chips listed on the prime market of the Ljubljana Stock Exchange (LJSE) is therefore of little surprise. Petrol d.d. – a major regional oil and derivatives distributor – and Gorenje d.d. – one of the leading European home appliance manufacturers – have in the past two quarters recorded an increased share value of 9% and 8.3% respectively. The reduced yield of the Slovenian 10-year bonds, currently at a yearly low of 0.72%, mirrors the conservatively optimistic IMAD forecast.

Having seen the securities turnover decrease annually (totaling EUR 20.3 million in August 2016), LJSE has also recorded an increase in the number of transactions from 3,421 to 4,144 compared to the same period the previous year. The market capitalization of securities has increased from EUR 24.28 billion to 25.57 billion, and the nominal return for the Slovene Blue Chip Index (“SBI TOP”) rose from -7.62% to 0.12% in the same period. Accordingly, the value of SBI TOP, indicating the weighted general performance of blue chip shares on LJSE, rose to 745.58 points in September 2016, its highest value since 2010. The trade of shares (Prime, Standard, and Entry Market), amounting to EUR 195.21 million in value, represents the predominant volume of LJSE-related transactions in 2016 thus far. The value of bond-related trade in the same period amounts to EUR 22.84 million, though no significant interest has been recorded regarding trade of treasury bills and commercial papers.

Major Deals

Unsurprisingly, due to the ongoing privatization process, the major transactions have been inextricably linked with the State-owned Slovenian Sovereign Holding (SSH) and Bank Assets Management Company (BAMC). Moreover, despite the apparent signs of recovery of the LJSE market, some of the major single deals struck in 2016 include non-listed companies as well. Transactions worth mentioning in this group include the sale of 100% of shares of AHA EMMI d.o.o. by BAMC to Aluform, a subsidiary of the Polish Grupa Kety S.A., for a total value of EUR 2.5 million (ODI advised the purchaser in the transaction). Topping the transaction value chart of 2016 is the acquisition of 100% of shares of the second largest Slovenian bank Nova KBM d.d. by Apollo Global Management, LLC and the European Bank for Reconstruction and Development for a total price of EUR 250 million.

As far as announced deals are concerned, the envisaged IPO of the largest Slovenian bank, NLB, d.d., qualifies as the undisputed blockbuster. According to SSH the preparatory activities are well underway, with the recently amended 2020 NLB Group Strategy believed to be the cornerstone of the bank’s aimed performance and competitiveness improvement. SSH aims to conclude the sale of the bank, subject to a bail-in in 2013 on which the Slovenian Constitutional Court is to decide in the coming months, by the end of 2017. Other anticipated or ongoing transactions led by SSH and BAMC include, inter alia, the automotive parts producers Cimos d.d. and Unior d.d., the foundry Mariborska Livarna Maribor, d.d., and the hygienic tissues producer Paloma d.d. 

The Amended Legislation Impact

Lastly, it is also worth noting that according to the provisions of Article 48 of the new Book Entry Securities Act, adopted to enable the implementation of the Target2-Securities settlement platform, all current securities registry accounts at the Central Securities Clearing Corporation (CSCC) are to be terminated on September 30 for legal entities and on January 1, 2017, for natural persons. The securities must be transferred from the registry to an account opened with one of the CSCC members in order to avoid a compulsory transfer of the securities to a deposit-in-court account. 

By Uros Ilic, Partner, and Tine Misic, Associate, ODI Law
This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.