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Serbia plans big IPOs to draw Western investors

Serbia’s political instability has made Western investors hesitant to participate in privatizations, and it’s going to take major moves such as big-name IPOs to lure them, a senior official said on Friday.

More than 2,000 firms have been sold since 2000, when the fall of autocrat Slobodan Milosevic ended a decade of isolation, and the economy has grown by an average 6% a year. But despite prudent macroeconomic policies and cutting red tape, the transition has also been marked by weak coalitions and slow, tortured progress towards the European Union. “The foreign companies participating in privatizations in Serbia mostly come from Croatia and Slovenia,” Luka Andric, State Secretary in the Economy Ministry said in a interview on Friday. “They are confident in their knowledge of the market. Investors from Western countries are hesitant to participate because of political instability.”

The latest government split, which might mean new elections, has nationalists and liberals squabbling over whether Belgrade should pursue closer ties with the EU or turn to Russia. Serbia has taken some $11 billion in foreign investment in the last eight years, versus almost $20 billion clinched by fellow ex-Yugoslav Croatia. Neighboring Bulgaria, an EU member, attracted $7.5 billion in 2007 alone. Andric said that to attract more investors, Serbia planned to float shares of big state companies including landline monopoly Telekom Srbija, as well as Galenika pharmaceuticals, both profitable, well-run firms with a strong brand.

“With this move, we hope to attract foreign investors and turn the Belgrade stock market into a significant regional player,” Andric said. “We think Telekom could be listed in the bourse by the end of this year or in the Q1 of 2009.” Andric said that some 750 remaining state companies would be sold off in 2008 and 2009, politics permitting. “The main challenges we face remain the huge number of employees in state-owned companies, accumulated debts and outdated equipment,” Andric said, citing a lack of investment in the 1990s.

Andric added, that one of the main factors attracting investors was the real estate holdings of state firms, often a bigger pull than their sector of activity. “Real estate is the most attractive feature for investors because of the potential growth to come with an expected hike in real estate prices,” Andric said. The state’s hopes for a windfall this year focus on car maker Zastava and the huge socialist-era conglomerate Genex, both of which were put on sale through tenders late last year. Another much-anticipated sale, of flag carrier JAT Airways, will depend on whether the government and parliament are in a position to pass necessary laws, he said. “The privatization adviser should finish the strategy by the end of the month and the tender should be announced in May,” Andric said. He said Icelandair and Russia’s Aeroflot had already expressed interest in the carrier. (Reuters)