Serbia Bets Second Time Is Charm in National Phone Company Sale

Serbia is under pressure from the International Monetary Fund to find a buyer for its national phone company. If it fails for the second time in four years, it won’t be for lack of trying.

Prime Minister Aleksandar Vucic, who opposed a 2011 sale attempt before taking office, will say Monday which companies plan to take part in a tender to raise more than 1.4 billion euros ($1.56 billion) from the sale of 58.1 percent of Telekom Srbija AD. Nine bidders, including Deutsche Telekom AG, Telekom Slovenije d.d. and Mobile TeleSystems PJSC, expressed interest, according to a privatization agency document released by former Economy Minister Sasa Radulovic on Aug. 10.

Optimism that the biggest ex-Yugoslav republic may succeed in meeting IMF demands to cut debts by selling its largest state assets may be tempered by skittishness over investing during the fragile recovery of emerging economies on top of concerns about red tape and corruption across the Balkan region.

“This is a difficult time to sell public enterprises” as money flows out of emerging markets, said Daniel Hewitt, an economist at Barclays Plc in London. “Countries have to choose the moment when there is strong demand to sell state-owned enterprises, otherwise it will always prove to be difficult.”

Companies who purchase bidding documents beginning Monday will have up to 180 days to submit binding offers. The sale may be completed before the end of the year, Telecommunications Minister Rasim Ljajic said, according to Tanjug newswire.

Success may help ease concerns that southeast European governments are reluctant, or unable, to sell state stakes as asset-sale programs from Slovenia to Serbia have never fully been implemented. Serbia and Croatia are also hamstrung as they both work to boost growth.

Fragile Growth

Serbia is trying to avoid a fourth recession since 2009 with a forecast of 0.5 percent growth this year. Croatia will also grow 0.5 percent, the first expansion in six years, according to the IMF.

Vucic, who negotiated a three-year deal with the IMF to bolster investor confidence, said he’s determined not to let the sale fail and show investors and the IMF that Serbia has never been more serious about asset sales.

Still, he won’t sell Telekom without an “adequate” price, which he expects to be “significantly higher” than the 1.4 billion euros set in the failed 2011 tender, state newswire Tanjug reported on Wednesday, citing Vucic.

That price tag would amount to about 4.5 percent of gross domestic product for this year and compares with the country’s 23.7 billion euros in debts, the highest since 2002.

The previous administration failed to come to an agreement with Telekom Austria AG, which offered 1.1 billion euros for 51 percent. At the time, Vucic’s opposition Progressive Party threatened to file criminal charges against the authorities because “Serbia cannot endure any more robbery.”

Cinven Pullout

The Serb sale announcement follows the Aug. 4 collapse in talks for Slovenia’s phone operator, which reportedly is interested in Serb Telekom. Venture capital firm Cinven Group Ltd., the sole bidder, pulled out over the “complexity” of Slovenian politics and a “not encouraging” regulatory environment.

“The failed Telekom Slovenije sale is definitely negative for the whole region,” said Gunter Deuber, an analyst at Raiffeisen Bank International AG in Vienna. “This holds especially true as the potential bidder was clearly complaining about the overall business environment and not just about the price.”

Croatia, the newest European Union member, has no big sales on the calendar as criticism rises that it is not fully committed to economic reforms, including asset sales, cutting public wages and reducing its generous early retirement system.

‘Reform Slowdown’

“A reform slowdown” in Croatia “is a risk, especially in view of approaching parliamentary elections,” said Vadim Khramov, an economist at Bank of America Merrill Lynch. There are “key priorities that remain.”

Still, the region has had recent success. The merger of units in the Republic of Macedonia owned by Telekom Slovenije and Telekom Austria was approved by local regulators on July 8.

Serbia is also hoping to go the distance. Vucic has taken two weeks to study non-binding offers, even as it faces mounting opposition by unions.

Vucic, once the spokesman for deceased Serb strongman Slobodan Milosevic, has promised to modernize the way government works, including taking politics out of asset-sale decisions.

Serbia is in the early stages of talks to be an EU member in the next decade. It would follow Slovenia and Croatia, which broke from Yugoslavia under Milosevic’s control in the 1990s.

Serbia and Croatia “should be able to attract more capital,” said Mert Yildiz, an economist at Roubini Global Economics. A lack of investments reflects “perceived corruption, political uncertainties, lack of market-oriented reforms and a fragile economic recovery at most.”

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