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INTERVIEW – Raiffeisen Investment sees Serbia’s food industry as busy M&A spot in 2014

BELGRADE (Serbia), December 12 (SeeNews) – Serbia’s food industry, which boasts some of the country’s most profitable and fastest-growing businesses, is expected to be a busy space for mergers and acquisitions (M&A) in 2014, the Raiffeisen Investment country director for Serbia said.

Some of the best Serbian food sector brands – confectionery maker Bambi [BEL:BMBI], dairy products company Imlek [BEL:IMLK] and mineral water bottler Knjaz Milos [BEL:KNJZ], could become attractive M&A targets further down the road if a resolution is found for the legal issues at shareholder level, Dragan Parezanovic told SeeNews in an emailed interview.

More specifically, Serbia’s fruit juice production and confectionery industries are also seen as ripe for consolidation with companies like Swiss Lion and Banini [BEL:BNNI] already open towards strategic partnerships.

The country’s energy sector has always been attractive for investors but the role there of stakeholders on the government side is significant while the size and value of most power industry transactions require a high level of political stability, transparency and a consistent government policy.

“That has not been the case with our decision-makers so far which is why we have not tapped this M&A potential,” Parezanovic said.

When asked about the local companies with the biggest potential to pursue M&A deals at home or abroad, the expert said these are only a few – oil and gas company NIS [BEL:NIIS], agro-industrial conglomerates MK Group and Victoria Group, and beverage maker Nectar.

In terms of the combined value of Serbia’s M&A market, the expert said this year is shaping up somewhat better than 2012 but only when looking at the nominal figures, because if the deal for the sale of ex-Yugoslavia-focused SBB/Telemach Group, valued at 1.0 billion euro ($1.38 billion), is factored out, the market on average is flattish year-on-year.

In October, multinational private equity firm Kohlberg Kravis Roberts (KKR) signed an agreement under which funds advised or controlled by KKR will acquire from Mid Europa Partners the SBB/Telemach Group.

SERBIAN BANKING SECTOR POISED FOR CONSOLIDATION

When it comes to M&A activity in 2013, Serbia’s banking and insurance sectors - facing consolidation and a portfolio clean-up, witnessed certain transactions and most likely there are still a few to come, the official said.

The government is set to divest its equity holdings in the banking sector with the lenders that have a regional focus seen as potential targets for some of the bigger players already doing business in Serbia that would like to expand their footprint to new regions of the country.

“On the other hand, non-performing loan ratios have significantly risen and Serbian banks will have to address this issue sooner rather than later,” Parezanovic said.

MERCATOR/AGROKOR DEAL SEEN PASSING ANTI-TRUST MUSTER

According to the expert, Raiffeisen Investment’s internal analysis shows that the acquisition of Slovenian retailer Mercator by Croatian privately-owned concern Agrokor would not exceed the market concentration threshold in Serbia.

In June, Agrokor signed a sale and purchase agreement with a consortium of shareholders that is selling a 53.1% stake in Mercator. Away from its home market, Mercator Group has operations in Croatia, Serbia, Bosnia and Montenegro.

It is difficult to tell whether or not the deal – already approved by the Slovenian competition watchdog - would get unconditional clearance in Serbia. Certain requirements may be attached to the anti-trust nod to shed assets in some critical locations in specific municipalities such as in the northern province of Vojvodina, Parezanovic said.

ECON MIN PRIVATIZATION PLANS AMBITIOUS

To wrap up Serbia’s privatization process by the end of 2014, as has been announced by the economy ministry, is a very ambitious plan bearing in mind that to privatize a company it is not sufficient to have a firm commitment but also find an investor as well, the official said.

“The Balkan region in general is not the most attractive investment destination and it takes a lot of time and efforts to change the risk perception of potential investors, assuming that they are already eyeing a particular M&A target,” Parezanovic said.

In his view, most of the Serbian companies on the privatization roster need serious financial restructuring. “That means big debt write-offs and modest proceeds from the sell-off of state-owned equity. If decision-makers are ready to face this market reality, that might help ensure a more efficient privatization process.”

When it comes to the government’s plans to exit insurance company Dunav Osiguranje [BEL:DNOS] and may be finally proceed with the much anticipated privatization of incumbent telco Telekom Srbija, Parezanovic thinks that if the government fails to find a way to tame the budget deficit, that could speed up the sell-off plans for both businesses.

If the government is ready to accept a lower valuation for Dunav Osiguranje - as the company needs restructuring, the exit could happen as soon as 2014, the expert said. But if the government wants to maximize the value of the insurer, they will have to restructure it first and then offer it to investors.

($=0.7253 euro)

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