May 6, 2013 / 1:36 PM / 6 years ago

Slovenia considers privatizations to avoid bailout

LJUBLJANA (Reuters) - Slovenia is looking to sell its largest telecoms operator and second largest bank, sources said, as it steps up efforts to shore up its finances and avoid an international bailout.

A man walks past the Bank of Slovenia building in Ljubljana December 8, 2011. REUTERS/Srdjan Zivulovic

The country is racing to convince investors it has a credible strategy for raising the funds it needs to stay solvent, and is due to adopt an economic reform program on Thursday before presenting it to the European Commission.

But the leading government party said lawmakers were not likely to adopt a rule to cap budget spending on Tuesday, as promised, because parties had been unable to agree when the rule should take effect - indicating they might have trouble agreeing other reforms as well.

Slovenia will this year miss its budget deficit target of 3 percent of GDP after it managed to reduce the deficit to 4 percent of GDP in 2012 from 6.4 percent in 2011. The European Commission forecast this year’s deficit at 5.3 percent.

The Bank of Slovenia urged the government on Monday to speed up privatizations in sectors where “the market is more effective than state ownership” but gave no details.

Slovenian banks, mostly state-owned, are nursing about 7 billion euros ($9.18 billion) of bad loans, which would probably have to be separated off into a standalone entity, a so-called bad bank, before the sector can be privatized.

Nonetheless, a government source told Reuters on Monday: “The sale of Nova KBM NKBM.LJKBM.WA is on the table.”

And according to an unconfirmed local media report, the coalition government of center-left and pro-market parties in the euro zone country of 2 million people is also considering the sale of Telekom (TLSG.LJ).


It is not clear who could be interested in the bank which has been trying to get a strategic partner since last year. The government has not officially abandoned the plan of its predecessor to keep a blocking stake of 25 percent in NKBM, which could put off potential buyers.

“Now that Slovenia is seen as the next Cyprus there aren’t a lot of investors who would have the guts for that kind of deal,” a Paris-based investment banker who did not want to be named told Reuters.

The privatization of NKBM was last stopped three years ago when the bank was raising fresh capital. The government decided private investors could only buy up to 49 percent of new shares to make sure the state kept a majority stake.

EU Economic and Monetary Affairs Commissioner Olli Rehn said on Friday Slovenia would not need a bailout if it reacted quickly to bring down its budget deficit.

It raised $3.5 billion via a bond sale on Thursday, pressing ahead even though credit agency Moody’s cut its sovereign rating to “junk” a day earlier.

That will probably avert a bailout at least until April, when it will have to repay a 5-year 1.5 billion euro bond.

“Privatization of several companies could this year bring up to 1 billion euros, which would significantly increase Slovenia’s chances to avoid a bailout,” said Borut Hocevar, an analyst at daily newspaper Finance.

Telekom is 74 percent state-owned and has a market capitalization of 647 million euros. Loss-making NKBM, 80-percent owned by the state, has a market capitalization of 96 million euros.

Moody’s said the bank’s bad loans have reached 28 percent of its total loans. The government plans to transfer most bad loans from it and other banks to a newly established bad bank from June, helping to ease a credit crunch.

However, the disagreement over the implementation of a so-called “golden fiscal rule” in parliament shows there are still likely to be political obstacles ahead, even though it is not part of the reforms to be presented to the European Commission.

The government, led by center-left Positive Slovenia, says the rule should be enforced from 2017 while the conservative opposition wants it as early as 2015.

Prime Minister Alenka Bratusek said enforcing the rule in 2015 would mean the government would have to cut pensions or public sector wages by as much as 30 percent by then, “which is not acceptable”.

Positive Slovenia party whip Jani Moderndorfer said the parliamentary majority would send the proposal back for further consultation if an agreement was not reached on Tuesday.

An opinion poll by Delo at the end of April showed 57 percent of Slovenians believed the country would not be able to solve its financial problems without international help.

($1 = 0.7624 euros)

Editing by Zoran Radosavljevic and Andrew Heavens

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