The new country you should worry about

[Alenka]

A je vreme kej boljše v Ljubljani?

Mah ne, hladno je čist.

[Arbërori]

Mah ne, hladno je čist.

Ah škoda. Pri nas pa je sonček.

[Baluarte]

Update:

Insight: After Cyprus, is Slovenia next euro zone domino?

(Reuters) - Successive Slovenian governments have refused to privatize the country's banks, which made disastrous loans to politically connected business interests and now threaten to drag the country center stage in the euro zone debt crisis.

A span of unfinished apartment blocks in the Siska complex on the outskirts of Ljubljana is emblematic of the former Yugoslav republic's woes, just as many such ghost neighborhoods in Europe's debt-choked south stand testament to the depth of the broader continent's economic problems.

The rows of buildings, housing 833 flats in all, stand mostly empty, casualties of a property boom turned bust and a subsequent recession. Alongside, Vegrad, a company once led by a well-placed politician, also planned to build a hotel, but got no further than digging an enormous hole. An apt symbol, as Slovenia comes under growing pressure to seek a bailout to fill a financial hole, just as Cyprus did last month.

The countries are different in many ways, but they have at least two things in common: like Cyprus, Slovenia needs to recapitalize its biggest banks, and it does not have the money to do so.




Slovenia was the only former communist state to refuse to sell most of its state-owned banking system after the fall of communism, so now it is taxpayers alone who must foot the bill of healing lenders after years of political influence and bad management loaded them down with bad loans equal to about a fifth of the economy.

Joze Damijan, an economics professor who was development minister in 2006, said state ownership meant a number of people and firms got special treatment from the lenders because of ties between political parties and the banks' management.

In the case of the Siska project, Vegrad borrowed from Slovenian banks - it owes 107.8 million euros to the largest lender Nova Ljubljanska Banka - then defaulted.

Vegrad's CEO was Hilda Tovsak, a former top official in the conservative Christian Democrats, who Damijan said benefited from her connections.

"The power of the director of Vegrad was very big. She had connections everywhere," he told Reuters.

A court sentenced her to 14 months in prison last month for arranging bids with two other construction firms for an airport control tower in 2008. She is also being tried for using money from a Vegrad-linked mutual fund in 2009 and 2010.

Tovsak has denied wrongdoing in both cases, and no evidence has been produced that Tovsak or Vegrad acted unlawfully in connection with the Siska loans. Her lawyer said she was not available to comment for this article.

Damijan left the government after only three months when he found that a plan to sell NLB was being undermined by political pressure to keep it in state hands where politicians could continue to exert control.

"I resigned because it became clear that there will be no privatization of NLB, that the state was determined to even increase control over it," he told Reuters. "It was already clear then that the state was a bad owner."

Media have reported that other bad loans are stacking up for the bank: 187 million euros owed by builder SCT, 100 million by construction firm Primorje, and 115 million by investment firm Zvon 1 Holding. All three firms are now bankrupt.

NLB disputes those figures but has given no other details, saying it cannot reveal client information.

BAILOUT?

Slovenia and Cyprus both joined the EU when the bloc launched its "big bang" expansion, opening the door to 10 mostly ex communist countries in 2004, which then swapped their currencies for euros a few years later.

But while banks in Cyprus suffered heavy losses due to large Greek bond holdings, Slovenia has virtually none.

And Cyprus faced criticism for hosting an offshore banking sector that was eight times the size of its economy by luring depositors, especially from Russia and Britain, who sought to avoid high taxes at home. Slovenia's bank sector is just 1.4 times as big as its economy, less than half the euro zone average.

But the source of the two countries' problems are similar. One was the cheap funding that poured into Slovenia, Cyprus, Spain, Ireland and other euro zone periphery states that helped inflate real estate bubbles.

In Slovenia's case, this was exacerbated by a lack of adequate oversight in the state-owned financial system.

"There was excess liquidity which blurred the judgment of some," said newly appointed central bank governor Bostjan Jazbec who will take over in July. "It is clear that in Slovenia we were not very successful in the management of the state companies."

The two countries also share the same vulnerability through their banks. According to the IMF, Slovenia will need to recapitalize its three largest, which are majority or largely state owned, by a total of 1 billion euros this year, or about 3 percent of GDP.

Last year non-performing loans reached 14.4 percent of the banks' loan books.

Repeated protestations by Ljubljana officials that "Slovenia is not Cyprus" echo other countries' efforts to calm markets before they too were forced into bailouts.

And while Slovenia still has access to international markets, investors have pushed its borrowing costs to above 6 percent, not far from the 7 percent considered unsustainable for a country to fund itself.

An opinion poll by Delo Stik in March showed 48 percent of Slovenians believed the country would not survive without international help, versus just 44 percent who thought it could.

"They say Slovenia is not like Cyprus, but I'm afraid things may get just as bad," said a woman named Nada, 63, who works part-time in a garden center. "They just told me this week that there is no work for me for at least two months. Who cares about flowers at a time like this?"

MIXED SIGNALS

Prime Minister Alenka Bratusek, who took power after a wave of protests against graft and austerity helped topple the previous government, is pushing ahead with a plan to create a "bad bank" to quarantine 7 billion euros in non-performing loans, most of which are burdening three main lenders, NLB, Nova KBM and Abanka Vipa.

The government must also inject up to 1 billion euros in new cash into the banks to lift their value and then sell them, although no date has been mentioned.

That cash must come from an overall 3 billion euros the government must borrow, a goal complicated by the crisis in Cyprus.

Conflicting statements from the top don't help, either.

Former Prime Minister Janez Jansa, ousted earlier this year, has said Ljubljana must issue a bond by June 6 or it would not be able to pay back a 907 million euro treasury bill coming due.

Last week, however, new Finance Minister Uros Cufer said the country could hold on until autumn to wait until markets calmed.

Cufer also said Slovenia could sell a major state asset this year. He gave no details, but the government has big stakes in the country's biggest telecommunications, fuels and insurance companies worth about 780 million euros at the moment.

Analysts are not sure who to believe. Although Slovenia sold enough debt at the end of 2012 to create a cash buffer that could last until about September, they said delaying a new debt issue until the last minute would be unwise.

"Post Cyprus, I think managing market and depositor sentiment is key ... Waiting for September or October is probably not a good thing," said Standard Bank head of research Tim Ash.

"They need to remain ahead of the market by really showing they have reform plans in place and can address the issues without resort to a Troika bail-out. Even then, it might not be possible."

(Editing by Michael Winfrey and Will Waterman)

[Vasconcelos]

This whole speculation doesn't really help them in any way, shape or form either...it's another self-fulfilling prophecy.

[wvwvw]

I wouldn't worry so much...Slovenian PM said Slovenia is not Cyprus and I believe her

[Baluarte]

I wouldn't worry so much...Slovenian PM said Slovenia is not Cyprus and I believe him

Epic line

[Baluarte]

Update:

Slovenia eyes bank sell-off, budget revision to avoid bailout

(Reuters) - Slovenia will have a plan ready to put to parliament in two weeks to sell off state assets, probably including a bank, the country's prime minister said on Friday as her government races to avert a bailout.

In her first major news conference in Ljubljana since taking office last month, Alenka Bratusek said her government would also send a 'stability programme' to European Union partners in Brussels by May 9 "at the latest".

The head of Slovenia's largest bank, state-owned NLB, told Reuters on Friday he did not expect the bank could be sold this year but finding a buyer would be possible in 2014 if the bank is recapitalised and restructured.

The tiny ex-communist country is coming under increasing pressure from financial markets after the messy bailout of Cyprus last month, raising concerns it could be the next euro zone country to need rescuing.

The country of 2 million people needs to raise about 3 billion euros (2.5 billion pounds) this year to recapitalise its biggest state-owned banks, repay maturing debt and cover its budget deficit.

Yields on its 10-year benchmark bond rose to 6.61 percent on Friday - closer to the 7 percent threshold at which a country's finances can become unsustainable - from 4.77 percent on March 15, the day before the Cyprus bailout deal.

"We will immediately start processes to privatise one or two companies. My wish is that one of those would be a bank," Bratusek said, adding that the proposals would come before parliament in 14 days.

Investors have complained over the lack of clarity regarding the plans of the three-week-old centre-left government, but Bratusek said she believed decisions should be reached before they are revealed to the public.

"I find it difficult to talk about things until they are agreed upon. I think it is right to do something first and then present it (to the public)."

Slovenia, the first state to break away from the former Yugoslavia and a trailblazer for ex-communist eastern Europe when it joined the euro zone in 2007, shied away from privatising its biggest banks, which are now burdened with bad loans. Its export-driven economy has been pounded by falling demand in the debt-laden euro region.

Trying to calm markets, Slovenia's Finance Ministry said on Thursday it planned the early rollover of debt maturing in June with an auction of around 500 million euros ($656 million) worth of 18-month treasury bills on April 17.

"I hope and wish that the T-bill auction will be successful," Bratusek said.

If successful, the operation which was probably agreed ahead of time with Slovenia's mostly state-owned banking sector, could give markets more time to calm down following the Cyprus's rescue.

Bratusek said the 2013 budget adopted by the previous government was "unrealistic" and would likely be revised to introduce more savings and tax increases, adding it was unrealistic to expect that the government could run a balanced budget as early as in 2015 as suggested by the opposition.

Last year the previous, conservative government - which lost its majority in parliament this January over a corruption scandal - managed to reduce the budget deficit to 3.7 percent from 6.4 percent in 2011.

Bratusek said the new government will continue with austerity but will also aim to do it in a way so as not to cause further economic contraction.

"It is a fact that we have problems, but I assured (Brussels) that we will continue with reforms," Bratusek said.

The government expects the economy to contract by 1.9 percent this year versus 2.3 percent in 2012 due to weak export demand and a fall in domestic spending caused by budget cuts but expects a mild recovery in 2014.

The country's banks, mostly state-owned, are nursing some 7 billion euros of bad loans which equals a fifth of GDP. The government plans to establish a bad bank by June that will take over bad loans and enable bank privatisation.

(Editing by Ruth Pitchford)

[Baluarte]

Update (from CNBC):

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Slovenia Buys More Time With Strong Bond Sale

Slovenia bought itself more time to avert an impending funding crisis on Wednesday as it sold more than twice the amount of government bonds it had hoped to on Wednesday.

The Slovenian finance ministry sold 1.1 billion euros in 18 month treasury bills, at a yield of 4.15 percent. It had hoped to auction around 500 million euros ($650 million) worth.

Some of the money will be used to buy back 885 million euros worth of debt maturing on June 6.

The latest test of faith in the Slovenian economy will allow the country to meet its near-term financial obligations.
The move will allow the center-left cabinet led by Prime Minister Alenka Bratusek more time to restructure and recapitalize the country's banking sector which holds toxic assets equal to around 20 percent of gross domestic product.

Slovenia Faces Challenging Times Ahead: IIF
Monday, 15 Apr 2013 | 6:50 PM ET
Tim Adams, Managing Director of the Institute of International Finance, says the bailout deal for Cyprus set a negative precedent for future bailouts and explains why he thinks Slovenia faces a recipe for challenging times.
Slovenia's borrowing costs have risen since Cyprus' banking bailout unnerved investors and was widely seen as a precursor to a possible rescue for Slovenia. Over the past month, the yield on Slovenia's ten year bond has risen above 7 percent. On Wednesday, the ten year was trading at 6.99 percent, up from 5.29 percent a month ago.

"[Today's] bill auction has a higher chance of success if the state leans on its banks to purchase its debt. Yet this would smack of desperation and would throw the scale of Slovenia's funding challenge into even sharper relief," Nick Spiro, head of Spiro Sovereign Strategy, told CNBC.

"More worryingly, it would draw attention to the lethal embrace between the sovereign and the state-run banks. This "doom loop" will become even more pronounced once the banks are recapitalized and restructured - with or without external support."

"What is most alarming is that Slovenia's debt market has been taking a pounding at a time when sentiment towards other vulnerable euro zone sovereigns, even Portugal, has remained extremely favorable," Spiro added.

The government announced the plans for the early rollover of debt maturing in an attempt to calm market fears that the country could soon need a bailout. However, parliament postponed a vote on austerity measures and European Union rules on budget deficits, prompting concerns that the country is resisting inevitable spending cuts and putting itself further into a financial mess.

The International Monetary Fund cut its growth forecast for Slovenia last month, forecasting that the economy would contract by 2 percent in 2013, down from a 0.5 percent decline projected six month ago. It said that the country could return to positive growth in 2014, only "upon implementation of reforms and continued market access as well as a recovery in the euro area."

"Slovenia, the wealthiest central and east European member of the European Union, is now the most vulnerable sovereign debt market in the euro zone," Spiro said. "The country's political and business elites have done their best to put off the day of reckoning… [but] Slovenia is veering dangerously towards a bail-out," he remarked.

-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

[Baluarte]

Update:

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Slovenia delays announcing plan to fend off bailout risk

(Reuters) - Slovenia has delayed announcing a plan to sell its sizeable holdings in state-owned firms, a central part of reforms needed to help the euro zone country stave off a bailout.

The finance ministry said it expected to submit a privatization plan to the government in the second week of May, contradicting an earlier pledge from Prime Minister Alenka Bratusek to reveal a scheme as early as this week.

Following the chaotic rescue of Cyprus last month, Bratusek's month-old cabinet is under pressure to convince investors to keep financing Slovenia via the debt markets.

"The proposals for the privatization of companies will probably be sent to the government in the week starting May 6," finance ministry spokeswoman Irena Ferkulj told Reuters.

The scheme is seen as a way to boost state revenues and bolster the confidence of investors who have become skeptical of the government's commitment to cut its budget deficit and sell off state firms that control as much as half of the economy.

It is expected to be part of a program the government aims to adopt by May 9 and then send to the European Commission.

Media reports have speculated the government could sell its stakes in telecommunications operator Telekom (TLSG.LJ), fuel retailer Petrol (PETG.LJ) and bank Nova KBM (NKBM.LJ)KBM.WA, which all have majority or large market shares.

BANKS
At the reform program's core is a plan to clean up the ex-Yugoslav country's three biggest banks, which are all majority or largely owned by the state and are nursing the lion's share of 7 billion euros of bad loans in the lending sector.

In a draft, the government said they needed 900 million euros ($1.2 billion) in new capital by the end of July.

That figure was, for now, lower than an estimate from the International Monetary Fund, which last month said the country's three largest, state-owned banks would need about 1 billion euros of new funds to shore up their balance sheets this year.

"There is a possibility that further recapitalisations will be needed, depending upon the development of the Slovenian economy and the transfer value of bad loans to the bad bank," the draft program said.

Slovenia's borrowing costs spiked after the Cyprus bailout. The government bought breathing room last week with an issue and early buyback of debt that helped push its 10-year bond yields more than a percentage point lower to 5.842 percent.

But Slovenia still needs another 2 billion euros by the year end to cover the budget gap and the bank recapitalization. It started non-deal road shows in financial capitals on Monday.

Some analysts have suggested Ljubljana will opt for a quick issue. Finance Minister Uros Cufer told Reuters last month it had enough liquidity to last until October, although it is not clear if that estimate included the bank recapitalization costs.

It is the only one of European Union's newer eastern entrants that did not privatise its financial sector after the fall of communism in 1989, leading to bad management and the repeated need for bailouts at taxpayers' expense.

The three state banks, Nova Ljubljanska Banka, Nova KBM (NKBM.LJ)KBM.WA and Abanka Vipa (ABKN.LJ), still dominate the lending sector with a market share of more than 50 percent.

DELAY

The government's plan is to move most of the non-performing loans to a "bad bank" starting in June and then offer guarantees of up to 4 billion euros to the bad bank, which will issue bonds to exchange for the non-performing loans.

The IMF and the Organisation for Economic Co-operation and Development club of wealthy countries have urged Ljubljana to sell the banks after the clean up and recapitalization.

But the banks' sales still face opposition from politicians in the fragile, four-party ruling coalition and officials have said there are no prospective buyers at present.

The government also said in the draft it would cut its budget deficit from 4 percent of gross domestic product in 2012 with tax hikes and spending cuts.

But it gave no details, and Royal Bank of Scotland analyst Abbas Ameli Renani said the draft had done little to rectify complaints that the government was moving too slowly.

In another sign of difficulty, the government called off a meeting of heads of all parliamentary parties on a fiscal "golden rule" planned after the main opposition party, the Slovenian Democratic Party, said it could not attend. ($1 = 0.7695 euros)

(Reporting by Marja Novak; Editing by Ruth Pitchford)

[Baluarte]

Shouldn't take too long now:

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Slovenia downgraded to junk by Moody’s

Slovenia’s credit rating was on Tuesday downgraded to junk by Moody’s rating agency, forcing the tiny eurozone state, which is battling to avoid an emergency bail out, to stall plans for raising debt in US dollar markets.

Moody’s said it was lowering the Alpine country’s rating from Baa2 to Ba1 because of the weak state of its banking system, deteriorating public finances and increased chance of requiring an international rescue. It kept the country on “negative outlook”, meaning a further downgrade is possible.

“There is increased probability that external support, external assistance will be required,” warned Yves Lemay, managing director for European sovereigns at Moody’s.

Despite its small size – its population is just 2m – Slovenia has attracted the attention of financial markets amid fears that the country will become the sixth eurozone member to require European financial support.

Moody’s announcement interrupted an investor roadshow for a planned issue of US dollar denominated bonds, which Slovenia’s newly-elected government hopes will avoid the country having to seek external help.

However, Slovenia’s fundraising may not be blown off course by Moody’s as the kind of investors interested in the country’s debt are less likely to be influenced by rating actions and will treat the country as similar to emerging market debt. The country’s escalating financial difficulties were also well-known.

Mr Lemay said: “While the government may continue to be successful in tapping the market, the rating action today is influenced by concern that there is an increased probability that at some time, funding will be more difficult in the market.”

Moody’s said asset quality at Slovenia’s banks “deteriorated considerably” in 2012 and was expected “to continue to deteriorate given the weak economic environment”. The country’s economy contracted by 2.3 per cent last year as a result of the banking crisis, and Moody’s is forecasting a further 1.9 per cent contraction in 2013.

The rating agency warned that delays addressing problems in the banking sector “suggest that the sovereign remains heavily exposed to contingent liabilities”. Bank recapitalisation costs were put at between 8 per cent and 11 per cent of gross domestic product.
Slovenia’s fiscal debt burden remained among the lowest in the eurozone but “the level at which debt metrics for Slovenia will peak is very uncertain and will depend in part on whether the government will need to provide further assistance to the banking system,” said Moody’s.

It added: “Risks to bondholders have increased and the sovereign’s cost of funding is likely to be prone to volatility.”
Slovenia has mandated Deutsche Bank, JPMorgan and BNP Paribas to arrange its investor roadshow, which started last month (April) in Washington.