Slovenian Top Court Prevents Bank Plan, Wealth Fund Vote

Slovenia’s Constitutional Court rejected two referendums, easing concern the euro-region nation may be forced to seek an international bailout.

Slovenia passed a law in October allowing for the creation of a state-owned institution to take over bad loans from banks and a separate law enabling a government-owned body to manage public companies and speed up privatization. Trade unions demanded referendums on the laws while the government had asked the court to ban these popular votes.

“There would be unconstitutional consequences” if these referendums went ahead, the court, based in the capital Ljubljana, said in a posting on its website today. Judges ruled 8-1 to block the referendums.

Slovenian officials, including Prime Minister Janez Jansa, have warned that the referendum on the so-called bad bank plan would jeopardize efforts to recapitalize lenders such as Nova Ljubljanska Banka d.d. and probably force the Adriatic nation to join Greece, Ireland, Portugal, Cyprus and Spain in seeking a rescue package to prop up its ailing financial industry.

“This is a major positive signal for Slovenia that there is a limit to the referendum abuse practice and it also sets groundbreaking legal precedent,” Andraz Grahek, an independent financial adviser in Ljubljana, said in a phone after the ruling. “It will also allow the government to focus on the execution of these plans. The finance minister has won the battle, but the tug of war may well continue.”

Bank Funding Plan

The bank funding plan foresees the creation of a government agency that would take up bad loans from lenders in exchange for government-guaranteed bonds of as much as 4 billion euros ($5.3 billion) that will probably be eligible for further financing at the European Central Bank, Finance Minister Janez Sustersic has said. A further 1 billion euros direct recapitalization for banks such as Nova Kreditna Banka (KBMR) Maribor d.d. is also foreseen, Sustersic has said.

Slovenian bonds gained, lowering the yield on the sovereign dollar-denominated notes maturing in 2022 by 39 basis points, or 0.39 percentage point, to a record low of 5.06 percent as of 3:19 p.m. The yield rose to a record high of 5.78 percent on Nov. 15 as the threat of referendums surfaced.

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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