Jurgen Fischer (right), a member of Deutsche Bank's board of directors, gives Slovak Prime Minister Mikuláš Dzurinda an earful during a press conference in Frankfurt in March.
Having been named in April as the leader of a consortium to advise on the privatisation of state telecom monopoly Slovenské Telekomunikácie (ST), DB was selected on August 23 to arrange the sale of a stake in the eastern Slovak steelmaker VSŽ Košice, and last week was named by the Austrian refinery OMV as the arranger of its attempt to buy into the Slovnaft blue chip refinery.
"This is a country where you can buy low and have a quick upside," said Johannes Kinský, DB's country manager for Slovakia. "In the Czech Republic, for example, prices are already high, so when we advise a prospective investor, we have to say that [in the Czech Republic], you invest at point A and in three years you'll still be at point A. In Slovakia, you can go from A to B quickly."
Kinský said that DB has made a concerted effort to increase its activities in Slovakia since the change of government last October. Having felt cheated by former Prime Minister Vladimír Mečiar during a bidding process to arrange a state bond issue two years ago, Kinský said DB decided not to launch any further business ventures in the country until the controversial Mečiar had been ousted.
"As long as Mr. Mečiar was in power, Deutsche Bank did not consider Slovakia as a country in which to do business," said Kinský. "Then the government changed and we decided that Slovakia was a good, dynamic story. We found a bunch of young people in government open to transparency and investment from the West. It seems that they are trying to establish some sort of stability."
Ill feelings now cast aside, Kinský said that his firm enjoys "excellent relations" with the government and is emphasising Slovakia as a desirable country in which to do business in central and eastern Europe.
Profitable or risky?
Most analysts agree that in terms of fixed income, Slovakia has become an attractive country. Ivan Chodák, an analyst for CA IB Securities, agreed that "opportunities are rising in Slovakia. Banking activities, especially investment banking, Eurobond projects and privatisations are very profitable right now."
"Slovakia is pretty hot for foreigners right now," confirmed Ján Tóth, a senior analyst at ING Barings. "There is an appetite for Slovak debt, and foreigners are optimistic that FDI inflows will lower the trade deficit in 2000."
In terms of equity investments, however, the jury is still out. While the ST privatisation is generally expected to be profitable for all sides, the VSŽ and OMV-Slovnaft projects, for example, are being questioned. With the management situation still unclear at VSŽ, and a standstill agreement with creditors long overdue, equity analysts are saying DB will be lucky to find an investor willing to pay more for VSŽ than US Steel's $220 million offer. And the belief that Slovnaft owner Slovintegra will not be willing to relinquish control of the refinery has other analysts questioning whether OMV will be willing to accept a minority role.
"The VSŽ and OMV contracts are not exactly risky, but it is doubtful that OMV would want anything less than a majority, and I don't know if Slovnaft will sell a majority," said Chodák.
But Kinský said that both projects posed a minimal risk to DB. "With Slovnaft, we are advising a potential buyer and we are not on the risky side. We're not going to advise them to do anything stupid - helping them put a offer on the table is our only role. With VSŽ, we are simply bringing our expertise," he said.
DB scored their first real Slovak coup when they were selected as the head of a consortium, which included financial analysts Slávia Capital and Wood & Comp. and legal advisors White & Case, to advise on the sale of a minority share in ST to a strategic partner.
DB's success didn't come without controversy, however. Telecom Minister Gabriel Palacka had to resign in August when it was discovered that the tender had violated the Slovak Commercial Code; DB was taken to task in the media over alleged personal ties between Economy Minister Ľudovít Černák and Slávia Capital, the local financial advisor that the bank chose for the project.
Kinský dismissed suggestions of wrongdoing by DB with a laugh. "No, I'm not sleeping with any minister's daughter," he said. "Of course we lobbied - naiveté does not help you win government tenders. But we are completely professional. I insist upon that."
While the controversy over their selection of Slávia Capital was unfair, Kinský said, it was also understandable given the "conspiracy theory" reactions of disappointed firms which had lost the contract to DB.
"We are going to advise on the largest and most important privatisation project in Slovakia," he said. "It is critical that it is a success. If you lose [the tender], you must explain it to your superiors. It is a typical tactic to show yourself as a bad loser so that the next time it will be more difficult for the deciding party to decide against you."
As for the selection of Slávia Capital, Martin Kabát, a market analyst for Slávia, said that his firm had been chosen because they provided DB with a domestic partner with connections to state firms and government officials. "We had to prove that we communicate with people, that we know everyone," he said. "And it wasn't hard for us to prove that we communicate with everyone."
Kinský agreed. "When you have a local partner, you are buying local expertise and this includes contacts. It is clear that these people [at Slávia Capital] know a lot of people in Slovakia."