Slovenia Overhaul Hampered by Referendums: Standard Bank

Slovenia’s efforts to overhaul the economy are being scuppered by referendums that may result in a credit rating downgrade as the euro-region nation struggles with a banking crisis, Standard Bank Group Ltd said.

“Successive governments have laid out reform plans but approval of legislation is complicated by the low hurdle set for holding referendums which have stalled previous attempts at pension reform and threaten current planned legislation to address plans for banking sector reform,” Timothy Ash, an emerging markets economist at Standard Bank (SBK), said in a note to clients today. “The trend deterioration in public sector debt ratios suggests downward pressure on ratings.”

Slovenian trade unions and opposition leaders have filed several referendum motions including one on the plan to stabilize the country’s banking industry which is grappling with rising bad loans. State-owned banks need fresh capital of as much as 12 percent of the country’s gross domestic product, Ash said.

The European Union is anxious that a political stalemate in the Adriatic nation may block measures by the government of Prime Minister Janez Jansa to overhaul the economy and help avert an international bailout, Finance Minister Janez Sustersic said in a Dec. 6 interview.

Standard & Poor’s put Slovenia’s rating on credit watch negative last month as referendum threats emerged, saying delays in the economic overhaul may harm investors confidence and could increase the nation’s financing costs.

Yields

The $2.25 billion notes sold in October and maturing in 2022 rallied today, with the yield dropping 3 basis points, or 0.03 percentage point to 5.392 percent at 12:51 p.m. in Ljubljana, the capital, according to data compiled by Bloomberg. The yield surged to 5.78 percent on Nov. 15 as the vote threat surfaced.

“Slovenian sovereign Euro-bonds, appear cheap on their regional peers - trading wide of Spain, Italy, Hungary and Croatia, which appears unjustified in our view,” Ash said in today’s report. “Slovenia has real economic challenges, but we estimate that these are manageable still with political will and consensus to enact meaningful reforms.”

The country’s export-driven economy is in its second recession in three years on a domestic consumption slump and a weak demand in Europe. GDP will probably only recover in 2014, according to the European Commission forecast.

Bad Bank

Lawmakers in Ljubljana passed legislation to create a so- called bad bank that would take out bad loans from banks such as Nova Ljubljanska Banka d.d. and Nova Kreditna Banka (KBMR) Maribor d.d. in exchange for government-guaranteed bonds of as much as 4 billion euros ($5.3 billion) that will probably be eligible for further financing with the European Central Bank, Finance Minister Sustersic has said.

The government has asked the Constitutional Court to prevent the votes with the ruling expected later this month, according to Sustersic.

To contact the reporter on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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