October 21, 2014 This is bne's Southeast Europe daily newsletter, a list of the top stories from the region. You can receive the list as a plain text or html email or as a pdf file. Manage your delivery options here:http://businessneweurope.eu/users/subs.php 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 a%3F 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/