October 21, 2014

October 21, 2014
This is bne's Southeast Europe daily newsletter, a list of the top stories from the
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SE TOP STORIES
1. Croatian heavyweight Milan Bandic floored by corruption charges
2. Central bank scandal raises questions about banking sector in Albania
3. Ex-PM Borisov struggles to form new Bulgarian government
4. Kosovo: Molotov Cocktails, Stones Hurled In North Mitrovica
5. Turkey to let Iraqi Kurds join Kobane battle
STORIES FROM WEBSITE
6. COMMENT: Why a shrinking Russian workforce might let Putin off easy
7. US bans Hungarian officials for alleged corruption
8. Ukraine's anti-corruption campaign moves onto the railroads
SE RESEARCH & COMMENT
9. Romania: Electrica (EL RO): Negotiations with a consortium led by JP Morgan for
advisory services for the potential purchase of Enel assets – neutral (Ziarul
Financiar)
10. Romania: Fondul Proprietatea plans buyback tender offer for 5.5% stake
(positive)
11. Romania: Nuclearelectrica (SNN RO): China General Nuclear Power Corporation
has been declared as a selected investor for the development of Units 3&4 – neutral
(company release)
12. Romania: OMV Petrom (SNP RO): Production continued to decrease in 3Q 14negative (OMV Trading Statement 2Q 2014)
13. Turkish banks: Summary of our 3Q14 earnings preview
SE Macro
14. Croatia's public debt at end of 2013 reaches 75.7 pct of GDP
15. Montenegro's monthly deflation in September was -0.4%
16. Romanian exports to China up, but trade still dominated by imports
SE OTHER NEWS
17. Bulgaria to cut gross electricity consumption by 2025: report
18. Romania: Cargill’s Black Sea Stop Is Booming 2,600-Year-Old Port
19. Russian Bank To Acquire Bank Victoria?
20. Serbian currency hits new low this year
21. Slovenian insurer Triglav to sell its Czech unit
22. Slovenia’s Telemach acquires mobile operator
SE TOP STORIES
1. Croatian heavyweight Milan Bandic floored by corruption charges
bne
October 21, 2014
The Croatian media is agog at the arrest of Milan Bandic, the mayor of Zagreb, and
at least 15 of his closest associates on corruption charges.
After months of investigations by police and Croatia’s anti-graft agency Uskok,
Bandic and a slew of city officials from the Croatian capital were taken into
investigative custody on October 19 on suspicion of corruption, abuse of office and
trading in influence, according to a statement issued by Uskok on its website.
Although the official charges will not be revealed until October 22, local media
reports suggest that the allegations against Bandic include the embezzlement of
public funds to support his failed bid to become Croatian president in 2009 as well as
the award of public procurement contracts during his more than decade long reign
as the undisputed ruler of the Croatian capital.
Among the other suspects arrested during the ‘Action Agram’ police operation–
named after the old moniker for Zagreb – were Slobodan Ljubicic, chief executive of
Zagrebacki Holding, the public agency that manages Zagreb municipal services, and
Peter Pripuz, chief executive of CIOS, a privately owned waste management
company which it is alleged to have been illegally awarded lucrative contracts by
Zagrebacki Holding.
Read more here: http://www.bne.eu/content/story/croatian-heavyweight-milanbandic-floored-corruption-charges
2. Central bank scandal raises questions about banking sector in Albania
Clare Nuttall in Bucharest
October 21, 2014
The discovery that €5m worth of cash had been stolen from Albania’ central bank
resulted in a large-scale inquiry with more than 16 of the bank’s employees including
its now ex-governor Ardian Fullani facing trial. The negligence discovered on the part
of Fullani and other senior officials raises questions about the supervision of Albanian
banks, and whether prosecutors will seize the opportunity for a wider investigation
into suspected corruption in the financial sector.
Thefts amounting to ALL715m (€5m) in cash emerged in July, when seven Bank of
Albania (BOA) employees were arrested on suspicion of stealing from the bank over
a four-year period. One economist confessed to police that he had smuggled
banknotes out of the building inside his clothes or old books. Ardian Bitraj told police
he used the money to gamble, stealing notes daily during the 2014 World Cup.
As the probe widened, pressure mounted on Fullani, who had chaired the bank since
2004, to resign. On September 5 he was taken into police custody and is now under
house arrest while several charges against him are investigated. And on September
18, Albania’s parliament voted to dismiss him from his post for alleged abuse of
office. A statement from Albanian prosecutors said that Fullani, together with the
bank’s inspector general Elivar Golemi, “because of their inactions, have created
conditions to violate the security of money in the administration of the Bank of
Albania.”
Read more here: http://www.bne.eu/content/story/central-bank-scandal-raisesquestions-about-banking-sector-albania
3. Ex-PM Borisov struggles to form new Bulgarian government
bne
October 21, 2014
After failing so far to strike a coalition deal, former prime minister and GERB party
leader Boiko Borisov said October 20 he would hold another round of talks with
potential allies in an attempt to avoid a repeat of elections in Bulgaria. The largest
party in Bulgaria’s fragmented new parliament, GERB is struggling to find partners,
and more than two weeks after the snap elections were held on October 5, it is
apparent they will not deliver the desired stable government.
GERB (Citizens for European Development of Bulgaria) announced October 16 that it
had agreed with the nationalist Patriotic Front coalition to work together in
government. The Patriotic Front also agreed to support centre-right tough-guy
Borisov as prime minister. This gives GERB the 19 seats held by the Patriotic Front –
comprising the Bulgarian National Movement (VMRO) and the National Front for the
Salvation of Bulgaria (NFSB) – in addition to the 84 seats that it holds, meaning
Borisov will need to find at least another 18 seats for a majority in the 240-seat
national assembly.
Striking the deal with the Patriotic Front was good news for GERB, which the
previous day had failed to make headway in talks with the Reformist Bloc, the
rightwing coalition considered to be its most likely ally in government. Six hours of
talks on October 15 ended with no agreement between the two parties, with the
GERB delegation expressing frustration with the Reformists. Writing on his Facebook
page after the talks, Borisov slammed the Reformist Bloc as “ill-prepared” and "an
unstable” partner. "I am extremely dissatisfied with the Reformist Bloc's preparation
for today’s consultations,” he wrote.
Read more here: http://www.bne.eu/content/story/ex-pm-borisov-struggles-formnew-bulgarian-government
4. Kosovo: Molotov Cocktails, Stones Hurled In North Mitrovica
InSerbia News
October 21, 2014
The former town hall building in North Kosovska Mitrovica, where are now civil
protection premises, came under attack twice on Sunday evening.
Unknown perpetrators first threw three Molotov cocktails at around 7 p.m. in front of
a civil protection vehicle that was parked outside the former town hall building, and
then stoned it at around 10:30 p.m., said eyewitnesses.
Read more here: http://inserbia.info/today/2014/10/kosovo-molotov-cocktailsstones-hurled-in-north-mitrovica/
5. Turkey to let Iraqi Kurds join Kobane battle
Al Jazeera
October 21, 2014
Foreign minister says Iraqi Peshmerga forces being "facilitated" to cross Turkey's
border with Syria.
Turkey has said it is helping Iraqi Kurdish Peshmerga fighters to cross its borders to
join Syrian Kurdish forces battling the Islamic State of Iraq and the Levant group for
the Syrian town of Kobane.
Read more here: http://www.aljazeera.com/news/middleeast/2014/10/turkey-allowkurds-join-fight-against-isil-2014102093610603527.html
STORIES FROM WEBSITE
6. COMMENT: Why a shrinking Russian workforce might let Putin off easy
Mark Adomanis in Washington
October 21, 2014
Russia’s economy is a mess right now: inflation is above target and rising, capital
flight shows no signs of slowing down, consensus projections on full-year economic
growth have been repeatedly lowered towards zero, major state-owned companies
have been frozen out of Western capital markets, and the ruble has fallen to its
lowest ever levels against both the euro and dollar. Oh, and as if all of that wasn’t
enough, the price of oil has gotten clobbered over the past month, suggesting that
Russia’s previously (roughly) balanced budget could be thrown into significant deficit.
In such a bleak situation optimism doesn’t seem merely unwarranted, but actively
foolish.
Despite all of this bad news, however, Russians haven’t turned against their
government. Poll after poll has shown that Russians remain supportive of President
Putin’s aggressive policy towards Ukraine, and Vladimir Vladimirovich’s approval
numbers remain in the stratosphere (the latest Levada poll has him at 86% support).
Other polls have indicated general support for the ban on Western produce, and even
expectations that sanctions will have a salutary effect on Russia’s economic
development.
At first glance this might appear completely irrational: why would Russians, who
have so enthusiastically embraced Western consumer culture, be supportive of a
leader who is taking them straight towards economic stagnation and ruin? Why
aren’t they upset that Russia’s fitful attempts at economic integration with the West
are now moving in reverse?
Read more here: http://www.bne.eu/content/story/comment-why-shrinking-russianworkforce-might-let-putin-easy
7. US bans Hungarian officials for alleged corruption
Kester Eddy in Budapest
October 20, 2014
Washington has banned a group of Hungarian officials from entering the US because
of suspicions of corruption, worsening what is already a strained bilateral
relationship.
Andre Goodfriend, charge d'affaires at the US embassy in Budapest, confirmed at a
press conference on Friday that the US was refusing entry to “fewer than 10”
Hungarian individuals “in the Hungarian government or in government-affiliated
organisations” for engaging in or benefiting from corrupt activities, in contravention
of US law.
Goodfriend declined to provide any names, citing privacy laws, or evidence of the
alleged corruption. He had called the press conference after an article that day in
Napi Gazdasag, a pro-government business daily, had broken news of the US ban,
saying the US move was in retaliation for tax audits at US-owned companies in
Hungary. Goodfriend said the embassy had been “unaware” of any tax audits. “We
did not want this erroneous story to become the public narrative,” he told bne.
The Hungarian government responded by saying it had requested names and
evidence of the supposed corrupt officials, but this had been denied. Peter Szijjarto,
the newly appointed Hungarian foreign minister, said this could create suspicion that
the US “wants to exert influence on certain issues”.
Read more here: http://www.bne.eu/content/story/us-bans-hungarian-officialsalleged-corruption
8. Ukraine's anti-corruption campaign moves onto the railroads
bne
October 20, 2014
Officers from Ukraine's security service SBU have raided the headquarters of
Ukraine's state railroad administration, one of the county's largest organisations,
confiscating over $1.5m in cash and documents relating to offshore firms, according
to the SBU. The SBU said that the railroads had played host to "a money-laundering
syndicate," and reform-minded officials at the organization have welcomed the raid.
SBU head Valentyn Nalyvaichenko said the cash and offshore documents showed
that Ukrainian Railways, or Ukrzaliznytsia, had been involved in money-laundering
for years. "The danger is that every railroads firm, every contractor of the railroads,
every insurance agent has been incorporated by corrupt officials in one money
laundering and budget embezzlement system," Nalyvaichenko said in an SBU press
release on October 17, calling the operation "a really huge criminal mechanism."
"Other industries and ministries are next in turn," said Nalyvaichenko, as quoted by
Interfax. "This isn't the last special operation – such money laundering centres will
be liquidated in future."
The details of the operation have not been released, but it is likely to involve
embezzlement from the railways by officials via the awarding of contracts to sham
suppliers in Ukraine and abroad, with the money then being siphoned to foreign bank
accounts or paid out in cash to railway officials.
Read more here: http://www.bne.eu/content/story/ukraines-anti-corruptioncampaign-moves-railroads
SE RESEARCH & COMMENT
9. Romania: Electrica (EL RO): Negotiations with a consortium led by JP
Morgan for advisory services for the potential purchase of Enel assets –
neutral (Ziarul Financiar)
Raiffeisen
October 21, 2014
* Electrica’s CEO was cited by the media. The consortium would also include KPMG
and CMS Cameron McKenna.
10. Romania: Fondul Proprietatea plans buyback tender offer for 5.5% stake
(positive)
Erste
October 21, 2014
* FP intends to accelerate the fourth buyback program through a buyback tender
offer in which the closed-end fund wants to seamlessly redeem 750mn shares out of
the 990.8mn shares targeted in the ongoing buyback.
* The application for the buyback tender offer was already submitted by FP with the
Authority for Financial Surveillance (ASF).
* Daily executions of the buyback program on the regulated market of the Bucharest
Stock Exchange have been suspended since October 16, with 36.35mn shares
repurchased so far for some RON 34.14mn (average acquisition price of RON
0.939/share).
* The purchase price in the buyback tender was not disclosed yet.
This would be the second buyback tender offer for FP after a similar exercise
launched last year between October 15 and November 4, as part of the second
buyback program, when the fund redeemed 600mn shares at RON 1/share. The
planned public tender for a 5.5% stake is aimed at accelerating the execution of the
ongoing buyback program and forcing the path of the share price increase in order to
quickly narrow the discount to NAV (which currently stands at 28%). One of the
main performance criteria imposed by FP shareholders on the asset manager is that
the trading discount must stay below 15% for at least two thirds of the trading
sessions during the period October 1, 2014 - June 30, 2015. The discount has to be
quickly narrowed, considering that, since the start of the month, the time has
already begun to run, to the detriment of the asset manager.
Raluca Florea
Marina Spataru
11. Romania: Nuclearelectrica (SNN RO): China General Nuclear Power
Corporation has been declared as a selected investor for the development of
Units 3&4 – neutral (company release)
Raiffeisen
October 21, 2014
* As the Chinese company was the sole qualified investor, this is just a formality of
the selection process.
* According to the initial proposed schedule this stage was set for September 30,
which implies that the signifying of the Memorandum of Understanding which was
initially planned for November 25 would be delayed for two weeks. The negotiations
for the establishment of the project company should start afterwards.
Alexandru Combei
12. Romania: OMV Petrom (SNP RO): Production continued to decrease in
3Q 14- negative (OMV Trading Statement 2Q 2014)
Raiffeisen
October 21, 2014
* SNP’s production for 3Q was 178 kboe/d, 2.2% lower yoy and 1% down qoq,
continuing the downward trend from 2Q 14. Ural crude price was USD 100.93/bbl,
dropping 8.8% yoy while RON has also appreciated by 1% yoy against USD which
had a significant impact on quarterly performance.
* The gas and power segment was characterized by lower gas sales volumes and
margins while the power business was marked by a negative average spark spread.
Gas sales and trading volumes were 8.68 TWh, down 23% yoy.
* The finalization of the Petrobrazi modernization added approx. USD 5/bbl to the
standard profitability of the refinery compared to the pre-modernization period. Med
Urals refining margin increased to 3.45 USD/bbl compared to 0.35 USD/bbl in 2Q 14
and 1.17 USD/bbl in 3Q 13. The utilization rate of the Petrobrazi refinery improved,
following the completion of the planned shutdowns in in Q2/14.
* Despite the good performance of the refinery segment, we would see this trading
statement as rather negative given the weak figures for the E&P and gas.
Iuliana Mocanu
13. Turkish banks: Summary of our 3Q14 earnings preview
Erste
October 21, 2014
* The earnings season for Turkish banks will start October 23. We expect higher core
banking revenues and a recovery in trading income to be the main contributors to
the bottom line. Although our estimates point to a 3% q/q bottom line contraction,
adjusting for dividend income in 2Q14, we estimate 8% q/q bottom line growth.
* When looking at Turkish banks’ 3Q14 results, we think that investors will focus
primarily on core banking revenues, trading income lines and credit quality trends.
We estimate 6% q/q growth in core banking revenues. Among the banks that we
cover, we expect Vakifbank and Isbank to register the most improvement in core
banking revenues. We expect the trading income line to turn black in 3Q14, thanks
to lower swap costs and the sale of securities. We also expect a limited deterioration
in credit quality, as our estimates point to 10bp and 15bp q/q deterioration in the
specific and gross cost of risk, respectively.
* We expect to see a good set of numbers from Isbank and Vakifbank, as these
banks will see growth in their core banking revenues, enjoy good credit quality
trends and post earnings q/q growth in 3Q14, despite the one-off items in 2Q14.
Can Yurtcan
SE Macro
14. Croatia's public debt at end of 2013 reaches 75.7 pct of GDP
Dalje
October 21, 2014
Croatia's public debt at the end of 2013 reached 75.7 percent of Gross Domestic
Product, which according to the new ESA 2010 methodology is 8.6 percentage points
more than before because the scope of general government now covers the stateowned motorway operators Hrvatske Autoceste (HAC) and Autocesta Rijeka-Zagreb
(ARZ), the National Bureau of Statistics (DZS) said on Monday.
Read more here: http://dalje.com/en-croatia/croatias-public-debt-at-end-of-2013reaches-757-pct-of-gdp/525542
15. Montenegro's monthly deflation in September was -0.4%
Balkans News
October 21, 2014
Montengro's monthly deflation in September was -0.4%. Montenegro's monthly
deflation measured by Harmonised Index of Consumer Prices was -0.4% in
September 2014 while consumer prices in September compared with the same
month of previous year were lower for -0.9%.
Read more here: http://www.balkans.com/open-news.php?uniquenumber=197903
16. Romanian exports to China up, but trade still dominated by imports
Romania Insider
October 21, 2014
Romanian exports to China went up by a quarter in the first seven months of the
year, after an all-year growth of 34% in 2013, according to Romania’s Economy
Ministry.
Romania – China trade reached some USD 2.2 billion during the period, out of which
Romania’s exports to China stood at just some USD 500 million.
Read more here: http://www.romania-insider.com/romanian-exports-to-china-upbut-trade-still-dominated-by-imports/133865/
SE OTHER NEWS
17. Bulgaria to cut gross electricity consumption by 2025: report
Xinhua
October 21, 2014
Bulgaria would reduce gross electricity consumption by 2025 compared to last year,
and the country would need new base load power plants after 2030, a report said
here on Monday.
Read more here:
http://www.shanghaidaily.com/article/article_xinhua.aspx?id=247738
18. Romania: Cargill’s Black Sea Stop Is Booming 2,600-Year-Old Port
Bloomberg
October 21, 2014
Constanta, whose natural harbor on the Black Sea has welcomed ships since at least
the sixth century B.C., is emerging as Europe’s biggest grain transport hub in the
$4.2 billion global wheat trade.
Read more here: http://www.bloomberg.com/news/2014-10-17/cargill-s-black-seastop-is-booming-2-600-year-old-port.html
19. Russian Bank To Acquire Bank Victoria?
Novinite
October 21, 2014
Rossiyskiy Kredit Bank wants to acquire 100% of the capital of Bulgaria's Victoria
commercial bank (formerly Credit Agricole Bulgaria), part of the troubled Corporate
Commercial Bank (KTB), reports BGNES.
Read more here:
http://www.novinite.com/articles/164180/Russian+Bank+To+Acquire+Bank+Victori
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20. Serbian currency hits new low this year
B92
October 21, 2014
The Serbian dinar (RSD) dropped by 0.05 against the euro (EURO) on Monday,
putting the middle exchange rate at RSD 119.5510 for one euro.
This is the lowest value of the domestic currency against the euro his year, the
National Bank of Serbia (NBS) has stated.
Read more here:
http://www.b92.net/eng/news/business.php?yyyy=2014&mm=10&dd=20&nav_id=9
1950
21. Slovenian insurer Triglav to sell its Czech unit
Reuters
October 20, 2014
Slovenia's largest insurer Zavarovalnica Triglav has agreed to sell its Czech business
Triglav Pojistovna to Prague-based VIGO Finance, part of VIGO Investments Group.
"The sale is expected to be concluded by May 2015," Triglav said in a statement,
adding that the sale is in line with its strategy of focusing on southeastern Europe.
Majority state-owned Triglav, which also has operations in Croatia, Serbia, Bosnia,
Macedonia and Montenegro, did not reveal the value of the deal.
To read the full storyhttp://in.reuters.com/article/2014/10/20/slovenia-triglavidINL6N0SF1PD20141020
22. Slovenia’s Telemach acquires mobile operator
Digital TV Europe
October 21, 2014
United Group-owned Slovenian cable operator Telemach has struck a deal to acquire
mobile operator Tusmobil from its owner Tus Holding.
Read more here: http://www.digitaltveurope.net/260332/slovenias-telemachacquires-mobile-operator/