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Slovenian Speaker Approves Referendum Bid on Bad Bank Law

Slovenian Parliamentary Speaker Gregor Virant approved a trade union call to set in motion a referendum on a plan to recapitalize banks as government officials work to avert a popular vote.

“I have set the deadline for the collection of signatures for the referendum on bad bank,” Virant, who has said he opposes the challenge to the Cabinet’s bank law, told reporters in Ljubljana today. “The period will start Nov. 19 and will last until Dec. 23.”

Slovenia, whose economy is the only one in the European Union’s east set to contract next year, is pushing ahead with an overhaul of the shrinking economy and the faltering bank industry. Failure to implement the bank law risks making Slovenia the sixth euro-region member to require a bailout, government officials have warned.

The trade union has to collect 40,000 signatures from citizens and if successful, the vote must take place, probably in January. Finance Minister Janez Sustersic will hold talks with the union to try and avert the referendum, Virant said yesterday in an interview with private broadcaster POP TV.

The government asked the Constitutional Court to rule if the vote on the creation of a wealth fund should go ahead and will probably do the same for the bank-plan referendum, according to Virant.

Slovenia, which adopted the euro as the first post communist nation in 2007, saw its borrowing costs on the benchmark bond advance to over 7 percent for most of August. The European Central Bank President Mario Draghi’s pledge to help bring down borrowing costs of troubled nations like Spain and Italy eased Slovenia’s borrowing costs as well.

The country was put on a Credit Watch negative by Standard & Poor’s last week.

Likely Downgrade

“The latest twist to the bad bank referendum plan makes an S&P rating downgrade extremely likely,” Abbas Ameli-Renani, a London-based emerging-market analyst at Royal Bank of Scotland Group Plc, wrote in a Nov. 9 note to clients. A possible downgrade by S&P “is serving to bring the rating agency’s view of Slovenian credit in line with Fitch and Moody’s.”

The yield on the benchmark $2.25 billion notes sold by Slovenia last month rose to 5.49 percent on Oct. 31, when the threat of a popular vote emerged.

“The market is already trading Slovenia as a much weaker credit than what is implied by S&P’s rating,” Abbas Ameli-Renani said. Slovenia’s $2.25 billion bond “ trades at a z-spread of 397 basis points, around 90 basis points wider than similar bonds of Croatia and Romania, rated BBB- and BB+ by S&P, respectively.”

A basis point is a hundredth of a percentage point.

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