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Slovenian Top Court Prevents Bank Plan, Wealth Fund Vote

Dec. 19 (Bloomberg) -- Slovenia’s Constitutional Court rejected two referendums, easing the risk the euro-region nation may need an international bailout and raising investor optimism about steps to strengthen its banking system.

The Ljubljana-based court ruled 8-1 to block referendums on government plans to create a state-owned institution to take over bad loans from banks and enable a state body to manage public companies and speed up asset sales, saying “there would be unconstitutional consequences.” Trade unions opposed the idea, demanding popular votes to scuttle the moves.

Slovenia, which is trying to spark the economy and reassure investors, is counting on the so-called bad bank plan to recapitalize lenders such as Nova Ljubljanska Banka d.d. and avoid joining Greece, Ireland, Portugal, Cyprus and Spain in seeking a rescue to prop up its ailing financial industry.

“Today’s court decision amounts to a defense of Slovenian sovereignty,” Prime Minister Janez Jansa said on his Twitter account after the ruling. “It safeguards the welfare of the people and it will enable a probe into a historic robbery of Slovenian banks.”

Slovenian bonds gained, with the yield falling on the sovereign dollar-denominated notes maturing in 2022 by 36 basis points, or 0.36 percentage point, to a record-low 5.09 percent by 4:22 p.m. in the capital Ljubljana.

The cost of insuring the debt with credit-default swaps slumped 21 basis points to 255, headed for the lowest close in 15 months and the steepest drop in emerging Europe today, according to data compiled by Bloomberg.

“The news is very positive for Slovenia and removes the most important headline risk that has prevented the credit from performing in line with its regional counterparts over the past two months,” said Abbas Ameli-Renani, an analyst at Royal Bank of Scotland Plc, in an e-mailed note.

Creditworthiness Perception

The swaps, which fall as perceptions of creditworthiness improve, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. “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 interview 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.”

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, according to Finance Minister Janez Sustersic. Another 1 billion euros direct recapitalization for banks such as Nova Kreditna Banka Maribor d.d. is also foreseen.

“This correct decision has shown there are sober minds in Slovenia and our arguments against the popular vote were valid,” Sustersic told reporters today.

The transfer of bad loans to the bank bank should start by April at the latest, he said.

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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