Category: Latvia

The pandemic-related consequences and the reluctance of Scandinavian funds to invest in the Baltic states, with Latvia being considered a potential war zone, led to the re-evaluation of the country’s most active sectors, according to Triniti Latvia Director of Business Development Eriks Blumbergs.

“During the COVID-19 years, commercial real estate was a hot topic,” Blumbergs begins. “There were a lot of real estate transactions, with new funds investing in building different spaces. However, this year, we see a re-evaluation in the real estate market. The pandemic-related consequences of offices not being at full capacity, together with the reluctance of Scandinavian funds to invest in the Baltic states, have led to the suspension of new real estate projects. Unfortunately, we are considered a potential war zone with a probability of some incident occurring in the future.”

Blumbergs says that “financing is another sector where the tide is turning. We used to be a crossroads and a bridge between the EU and Russia. Now the war is having an impact on banks, especially in Latvia.” According to him, the need to carefully vet clients and many businesses with frozen accounts keep lawyers busy. “On the other hand, non-bank financing is flourishing. From fintech to payday loan providers, companies are doing well and some of them have even increased their portfolios, despite the uncertainty,” he notes.

The geopolitical turn of events, Blumbergs adds, has caused the energy sector to be put on high alert. “The gas tariffs are expected to be doubled by the end of the year,” he explains. “Law firms are working on different compliance requirements to address how to re-index prices. This led to a switch to renewables and the fast-tracking of construction of any large-scale wind park imaginable,” he says.

Blumbergs says that there are a few legislative proposals debated at the moment to find the right balance between public and private interests. “For instance, the removal of the environmental impact studies requirement has been suggested for wind farms exceeding 50 megawatts. Of course, the idea of abandoning all measures was followed by a backlash,” he says. “The additional legislative proposals suggest allowing the construction of wind parks in forests and establishing offshore wind farms with Estonia in the Baltic sea.”

All of this, Blumbergs notes, has created a number of challenges, such as the absence of a relevant legislative ground to register real property at sea. “This summer, we expect a panel discussion among lawyers to settle some legal debates,” he notes. According to him, “these days, many interest groups are hiring law firms on advising the government, to not end up having investment disputes. Lawyers, usually sitting on the side of private industry players, are now addressing the complex tasks of public interest.”

Finally, Blumbergs says that the recent reforms related to municipalities are a challenge for every lawyer. “Initially, Latvia was split into smaller regions, but now they have been merged for reasons such as economic efficiency,” he says. “This has created ambiguity about territorial planning, which is a crucial question for investors. The current zoning in most municipalities will be effective until the end of 2024, and we have no clear guidelines about what to expect afterward,” he concludes.

Skrastins & Dzenis has successfully represented the insolvent PNB Banka in five arbitration proceedings at the London Court of International Arbitration, with the bank’s claims against its shareholders amounting to about EUR 50 million.

According to Skrastins & Dzenis, “the insolvent PNB Banka filed claims against its shareholders who reside in the US, France, and Switzerland. The shareholders failed to fulfill various obligations, which inter alia most importantly include a contribution to PNB Banka’s tier 1 capital. The claims filed by the insolvent PNB Banka amount to approximately EUR 50 million.”

“The LCIA fully satisfied all claims and ruled for the recovery of funds from the insolvent PNB Banka’s shareholders,” the firm informed.

The Skrastins & Dzenis team included Partner Verners Skrastins.

Sorainen’s Latvian office has successfully represented Sia Prolux in challenging the negotiation procedure for the “Delivery and installation of kitchen equipment at the Jelgava state municipality educational institution Jelgava Technology Secondary School” at Meiju Road 9, Jelgava, organized by the Jelgava city municipality and held at the Procurement Monitoring Bureau.

According to Sorainen, the negotiation procedure was conducted due to a previous open tender bid closing following the submission of inappropriate tenders. However, in addition to all of the suppliers that took part in the open tender taking part in the negotiation procedure, one additional supplier was invited and was awarded the contract.

According to the firm, “the Procurement Monitoring Bureau stated that in order to justify conducting a negotiation procedure due to the submission of non-compliant tenders in the open tender ‘it must be established that the tenders submitted in response to the tender are so incapable or incompatible with the contract that no further negotiation is possible at all.’ When assessing the discrepancies found in the tenders, the IUB agreed with our assessment that they could easily have been corrected or clarified during negotiations in the framework of the negotiated tendering procedure, by negotiating only with those suppliers who had previously participated in the open tender. Consequently, the IUB found that the [Jelgava city municipality] had acted unreasonably in organizing the negotiation procedure.”

According to Sorainen, the decision “is important not only in the context of this case, but also for the improvement of the procurement environment, as it clarifies under which circumstances it is permissible to conduct a negotiation procedure in case of the termination of an open tender, and under which circumstances it is permissible to conduct a competitive procedure with negotiation without the publication of a contract notice, negotiating only with those suppliers who participated in the open tender.”

Sorainen’s team included Counsel Raivo Raudzeps and Senior Associate Katrine Plavina-Mika.

Cobalt has successfully represented Food Union group company Rigas Piena Kombinats in a court dispute against a former employee regarding the invalidation of the termination notice and the recovery of unpaid wages.

According to Cobalt, “after the employee was dismissed on the grounds of misconduct, he brought a lawsuit seeking reinstatement, compensation for moral damages, compensation for unpaid wages, and downtime benefits that were allegedly underpaid. The employee’s claim was fully dismissed in all court instances. The court also imposed the obligation for the employee to reimburse litigation expenses that were set at the maximum limit allowed by the Civil Procedure Law.”

Cobalt’s team included Partner Toms Sulmanis and Senior Associate Ivo Maskalans.

TGS Baltic has advised Remg Trade, Executo, and Future Farm on the sale of Selp to the Taaleri Group and Lords LB Asset Management. Sorainen reportedly advised the buyers.

Selp was established, according to TGS Baltic, “with a view to developing, owning, and constructing a wind power project to be located in Talsi municipality, with a total planned connection capacity of 138 megawatts.”

Lords LB Asset Management focuses on real estate and private equity investment strategies. 

The Taaleri Group is a Nordic investment and asset manager with an emphasis on renewable energy and other alternative investments.

TGS Baltic’s team included Senior Associate Armands Masulis.

Cobalt has advised real estate developer VPH on the development of a shopping complex on the site of the former Riga Dairy Factory, in the center of Riga, with a total investment of up to EUR 40 million.

The VPH Group develops and manages commercial real estate across the Baltic states.

According to Cobalt, “the project will include offices, a catering sector, a kindergarten, a sports and health center, and other services. The former Riga Dairy Factory site of 4.7 hectares at Valmieras Street 2, Riga was acquired in May of this year with the financial support of Rietumu Banka. The developer plans to complete the design by mid-2023, start construction and open the new complex in the second half of 2024.”

In 2021, Cobalt advised VPH Latvia on developing another shopping center in Riga, with a total gross leasable area of 4,300 square meters and a planned investment amounting to approximately EUR 8 million (as reported by CEE Legal Matters on July 9, 2021).

Cobalt’s team included Managing Partner Dace Silava-Tomsone, Specialist Counsels Andrejs Lielkalns and Edgars Pastars, and Senior Associate Juta Meimere.

Cobalt has successfully represented Eolus Vind subsidiary Pienava Wind before Latvia’s Administrative Regional Court in a dispute against the Tukums Municipality for the approval of the construction of a 22-turbine wind farm.

According to the firm, on March 25, 2020, the Tukums Municipality refused to authorize the construction of the Pienava wind farm. “On May 10, 2022, the Administrative Regional Court fully upheld the application of Pienava Wind, declaring that the decision of the Tukums Municipality was unlawful and ordering the Municipality to approve the construction of the wind farm,” Cobalt informed.

“The Court held that, in the process of approving the proposed activity, the economic and social interests of society must be fairly balanced with the interests of environmental protection,” Cobalt added. “The Court made a very important conclusion for the renewable energy industry, namely that the transition to renewable energy sources is not only important for the development of sustainable energy, energy security, and the energy independence of the European Union but also effectively contributes to stopping the adverse effects of climate change and helps to achieve climate neutrality.”

According to the firm, consequently, the Tukums Municipality complied with the judgment of the Administrative Regional Court and adopted a decision to approve the construction of the wind farm in the Tukums Municipality on May 25, 2022. “The Pienava wind farm will consist of 22 turbines and it is intended to invest EUR 150 million in its development.”

Eolus Vind is a Sweden-headquartered commercial wind power developer with wind power plants with a combined effect of approximately 1,414 megawatts globally. The company has ongoing constructions in Sweden, Norway, and the United States, and is also active in Finland, Poland, Estonia, and Latvia.

The Cobalt team included Managing Partner Lauris Liepa, Partner Gatis Flinters, Specialist Counsel Martins Aljens, and Associate Arturs Valdersteins.

Cobalt has advised Latvenergo AS on its issuance of EUR 100 million five-year green bonds with a fixed annual interest rate and a yield to maturity of 2.42%.

The arrangers of the issuance are Luminor Bank AS and Swedbank AB.

Latvenergo is a state-owned electric utility company in Latvia. The company generates about 70% of the country’s electricity.

According to Cobalt, “the total amount of the submitted purchase orders reached more than EUR 160 million. The purchase orders were received from 17 investors, including asset management funds, insurance companies and banks in Latvia, Lithuania, Estonia, Finland, Sweden, and Austria, and international financial institutions – European Bank for Reconstruction and Development and Nordic Investment Bank.”

The issuance of notes is being implemented under Latvenergo AS EUR 200 million third program for the issuance of notes. Last year, Cobalt advised the banks on Latvenergo’s EUR 50 million issuance (as reported by CEE Legal Matters on May 28, 2021).

Cobalt’s team included Partner Edgars Lodzins and Senior Associate Krisjanis Buss.

Cobalt did not reply to our inquiry on the matter.

Triniti has advised Enersense on the exercise of its call option to increase its shareholding in the local Latvian affiliate Empower.

According to Triniti, on March 1, 2022, “Enersense increased its holding in Empower, which had become an Enersense Group company through an [earlier] acquisition, while local minority shareholders and management continue to participate in the business.”

Enersense is a Finland-based resource management company specializing in energy infrastructure projects, including communication, digital products, and industrial platforms.

The Triniti team included Senior Associate Eriks Blumbergs.

The word of the day in Latvia is resilience – that of the M&A market, capital markets, and overall business sectors, according to Eversheds Sutherland Partner Maris Vainovskis.

“Ever since the start of the war in late February, the energy, infrastructure, defense, and food sectors have been on notice,” Vainovskis begins. “Still, the war has not actually stopped M&A activity – a few deals may have been put on ice, but not nearly as many as expected – the market has shown a strong resilience, and investors consider the Baltics to be a good opportunity.”

In terms of trends, Vainovskis underlines that the talk of the town is the impact of the EU Green Deal and sustainable finance. “The banks are adjusting their lending policies to facilitate for sustainability-driven projects, with a number of sectors adjusting – primarily energy, construction, waste, and various types of production,” Vainovskis reports. Furthermore, Vainovskis reports a JV between the “largest private equity fund in the Baltics, BaltCap, acting via its Infrastructure Fund, and AJ Power, a major privately-owned energy sector group in Latvia. Solar and wind, especially offshore wind, are the dominating investor interest nowadays,” Vainovskis adds.

Vainovskis also highlights some updates on the capital markets. “Latvia has recently been active in its efforts to develop strong and active capital markets. We have seen a number of IPOs and bond listings by local business on the Nasdaq Baltic market,” he reports. “For example, the DelfinGroup, Indexo, and leading locally owned fuel station chain Virsi have performed successful share offerings and several new issuers are about to access the capital markets.”

Finally, Vainovskis reports that the FCMC – the financial and capital markets regulator in Latvia – has taken a proactive role. “The FCMC recently launched an IPO sandbox in Latvia and actively supports other good initiatives,” Vainovskis says. “The idea behind the sandbox is to have potential issuers exposed to a panel of experts and obtain free high-quality kick-off and orientation advice before they proceed with an IPO process,” he explains. The FCMC, according to Vainovskis, is attempting to further stimulate the capital markets ecosystem of Latvia. “It is important because our capital funds, pension funds, local individual investor money should be stimulated to stay within our own economy. There is not a lot of market liquidity at the moment, but past IPOs have demonstrated reasonable stability in face of global capital market fluctuations – so I am hopeful that this adds to the attractiveness of Latvia,” Vainovskis concludes.