Brokerage house Slávia Capital is fast gaining an international reputation as a safe, professional partner for financial transactions in Slovakia. Having won two big tenders - to assist in the sale of stakes in Slovak Telecom and the Slovnaft refinery - and having underwritten between five and six million euros of a recent bond issued by gas utility SPP, Slávia is making a high-profile move into investment banking and financial advisory services.
As the brokerage has moved up in the financial world, however, it has made enemies, particularly in the media. Slávia's selection as the financial advisor on the Slovak Telecom sale was ascribed to its reputed personal links to Economy Minister Ľudovít Černák, while its underwriting of the SPP bonds was attacked by the national daily Pravda as a "conflict of interest" on the evidence that Slávia co-owner Peter Ratkovský had been employed as an advisor to SPP Director Pavol Kinčeš.
"It's absolutely unbelievable, what they [journalists] write," said Peter Gabalec, another Slávia co-owner. "In spite of the fact that the public offer was placed on international markets by [French] Banque Paribas, meaning that neither Ratkovský nor the SPP could have influenced the bond price, they still wrote that Ratkovský had a conflict of interest. I know that SPP will sue these journalists, and probably Paribas as well. It's very bad for our name."
Why Slávia's sudden rise has provoked such attacks is hard to say. One Bratislava analyst, speaking on condition of anonymity, argued that a general lack of transparency in government tenders had cast suspicion on any firm winning a state contract. The fact that Slávia's upturn had closely followed last year's election victory of the current government, said the analyst, also fed beliefs that the brokerage was using cabinet ties to win deals. "That's just the way it works in Slovakia," the analyst observed.
Slávia Capital was launched as a brokerage in 1995 by Ratkovský and Gabalec, both of whom had worked in the money market section of state bank Slovenská Sporiteľňa. The many corporate and banking contacts the pair had made helped them to build a thriving stock market business, and when the Mečiar government began piling up huge foreign debts to finance its fiscal deficits, Slávia began to make big profits from handling state paper as well.
"In 1998 we showed growth mainly in non-risk business," said Gabalec, pointing to the fact that Slávia's trading in state treasury bills (T-bills) totalled 396 million Slovak crowns ($9.8 million) that year, almost three times what it had been in 1997 and representing an almost 80% share of the brokerage's turnover. The firm's net profit was 34.9 million crowns that year, almost four times higher than in 1997.
This year, Slávia has made a leap into financial advising, a move Gabalec said was designed to inflate the brokerage's reputation rather than line its pockets. The Slovak telecom advisory tender, he said, had been won by Slávia as a junior partner in a consortium led by Deutsche Bank. "This is a great deal for our image, but we will not make much money out of it," he said. The entire advisory group was to receive "well below 1%" of the eventual sale of the state telecom monopoly, with Deutsche bank taking "70-80%" of that figure. Slávia, Gabalec argued, would not receive much more than the costs of travelling to London for negotiations on the deal.
So why the media ruckus if Slávia stood to make so little on the advisory contract? Gabalec professed ignorance. "How can we respond?" he asked. "What does it mean, 'Slávia is close to Černák'? We always see this sentence, and then below it is written something that is technically impossible."
Johannes Kinský, Deutsche Bank's country officer for Slovakia at the time of the Slovak Telecom tender in April, told The Slovak Spectator on October 13 that he was not surprised Slávia had taken some heat from the press over its recent successes. "Early in 1998, when it became apparent that Mečiar's runaway spending wasn't going to continue forever, they started to position themselves with the former opposition," he said. "Now that the former opposition is in power, Slávia is very well-connected. They have the confidence of this or that minister on a case by case basis, which helps them get deals."
But Kinský added that Slávia, to his knowledge, had never used its political connections to act in a non-transparent way. "I can't issue a guarantee that they are angels in all areas of life," he said, "and they are certainly local smart boys, but with Deutsche Bank they were always straight, transparent and professional. When we did due diligence on Slávia in March , we found a bunch of people very careful of their reputation, and we found no reason not to do business with them."
Filling a void
With Slovak state banks basically unable to lend fresh funds or take on further risks, Slávia officials say they have been approached both by domestic firms interested in placing bonds, and foreign banks seeking Slovak contacts. In moving into investment banking, they say, Slávia is performing a needed service in Slovakia.
But one foreign analyst questioned this view, asking why any third party was needed to bring foreign banks and Slovak corporations together. "Given the existing presence of banks and corporate entities, the need for a third domestic partner is suspect," the analyst said.
Kinský was inclined to take the middle ground. "By central and eastern European standards, Slávia is very good and qualified," he said, "so it's natural they are being approached. On the other hand, if you are a successful broker who wants to make a move into investment banking, you have to institutionalise."
It was Slávia's success in 'institutionalising' - becoming connected with big international players - that had awoken the venom at home, Kinský opined. "They're the only really professional local boutique, and they enjoy an almost monopolistic position," said Kinský. "That's bound to generate some polemic."