Category: Slovenia

Rojs, Peljhan, Prelesnik & Partners, and Allen & Overy (together with Consultant Hugh Owen of Go2Law), have advised insurer Generali CEE Holding BV, a part of Italy’s Generali Group, on its EUR 245 million acquisition of Adriatic Slovenica Zavarovalna Druzba d.d from financial group KD Group d.d. Ulcar & Partnerji and solo-practitioner Simon Gabrijelcic advised the buyers on Slovenian law matters, and Mayer Brown advised on English law matters.

The transaction remains subject to the approvals of regulatory bodies and competition authorities.

“The acquisitions in Slovenia and Poland will enable us to balance and diversify our portfolios, sales channels, and regional presence,” said Luciano Cirina, Austria, CEE & Russia Regional Officer and CEO of Generali CEE Holding. “Also, through these acquisitions the business of Generali Group in the Austria, CEE, and Russia region will increase about seven percent, reaching more than EUR 6.4 billion in terms of premium income. Ongoing M&A activities will speed up the journey towards fulfilling our strategic goals of strengthening, in particular, the P&C and health portfolio and as well third-party asset management.”

The Adriatic Slovenica insurance company provides property and casualty insurance, health, life, and pension products. According to Generali, in 2017 Adriatic Slovenica generated gross premiums written of EUR 304 million. It ranks third in the Slovenian market with a market share of nearly 15%. Furthermore, the acquisition includes a mutual fund manager KD Skladi, which has over EUR 750 million in assets with a market share of 20% and a presence in Croatia and Macedonia through its subsidiaries.  

The RPPP team was led by Managing Partner Grega Peljhan and Partner Bojan Sporar and included Senior Associates Rok Kokalj and Jakob Ivancic.

The Ulcar & Partnerji team consisted of Partners Matjaz Ulcar and Barbara Ulcar, and Senior Associates Blaz Princic and Polona Bozicko.

The Mayer Brown team was led by Partners Colin Scagell and Robert Flanigan. The team also included Partner James Hill, Counsel Sam Webster, Senior Associate Simon Allison and Daniel Gallagher, and Associates Alastair Dolman and Annabelle Trotter. The Brussels team consisted of Partner Julian Ellison and Associate Deborah Faure. 

Editor’s Note: The article has been updated.

The first recorded energy performance contracting project in Slovenia was carried out in 2002, and was soon followed by a number of other similar projects, notably in the public sector. Thus, energy performance contracts are not a new concept in the Slovenian business sphere, although it was not until 2014 that the country’s newly adopted Energy Act transposed Directive 2012/27/EC on energy efficiency and introduced a comprehensive definition of an energy performance contract. 

The Energy Act defines a guaranteed energy performance savings contract as a contractual arrangement between a user and the provider of a measure for an improvement in energy efficiency that is reviewed and monitored for the entire effective period of the contract and in the framework of which investments (labor, supply, or service) in the measure are paid proportionally with the level of improved energy efficiency agreed under the contract, or with another agreed measure of energy efficiency, such as financial savings. The Energy Act does not provide any other provisions regarding this legal construct. Generally, as in other forms of third-party financing arrangements, the beneficiary of the energy service avoids investment costs by using part of the financial value of energy savings to repay the investment fully or partially carried out by the energy service provider.

During the past few years, the Slovenian government has increased its focus on saving energy within government-owned buildings to address environmental concerns and to implement the obligations and objectives of sustainable growth by 2020, set out in numerous documents at the EU level. Notably, Directive 2010/31/EU on the energy performance of buildings establishes measures with the public sector playing a leading role. After 2018, public entities will be allowed to purchase only nearly zero-energy buildings when purchasing new buildings. In this regard, buildings owned by public authorities represent around 10% of the total building stock in Slovenia. Pursuant to Slovenia’s National Energy Efficiency Action Plan 2014-2020, which represents another important energy efficiency policy, the Slovenian government expects that as much as 80% of all energy renovation funding of public buildings will be provided through energy performance contracts by 2020.

Energy performance projects in the Slovenian public sector are performed as public-private partnerships. Thus, under the Public-Private Partnership Act, the most appropriate legal form for an energy performance contract in a public-private partnership would be a concession (where most of the business risk is assumed by the private partner). However, should the public partner receive non-returnable subsidies for investing in the project, then most of the business risk would be borne by the public partner. Therefore, the project cannot be done by awarding a concession, but instead through public procurement or a so-called “two-tier model,” under which the public partner conducts a public procurement for the implementation of the energy efficiency improvement measures and awards the concession for their management.

The procedure for the energy performance public tender is initiated by publishing the invitation to tender that is followed by the public opening of the tender applications, subject to review and assessment by an expert committee appointed by the public partner. The expert committee determines which applications fulfill the tender conditions and classifies them in a way that specifies which of the applications are most successful in meeting the criteria set and what subsequent ranking they achieve in terms of meeting the criteria. The contract on public-private partnership concludes following the selection of the private partner by a final decision. Therefore, the provisions of the Public-Private Partnership Act and Directive 2012/27/EC, notably with respect to the efficiency measures, savings, duration, and other provisions, should be considered when drafting public-private partnership energy performance contracts.

It stems from this that energy performance contracts in the public sector carry a number of inconveniences, the first being the non-comprehensive and scattered regulation of the subject matter. Furthermore, from a procedural point of view, the Public-Private Partnership Act does not constitute the most appropriate regulation to achieve the ambitious objectives of the Slovenian government with respect to ensuring the energy efficiency of public buildings. Hence, the relevant legislation should be amended by determining exemptions from the public tender procedure for energy performance contracts.

By Jan Sibincic, Managing Partner, Law Firm Sibincic Krizanec 

This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

For the past five years the financial market in Slovenia has been characterized by a process involving the selling of non-performing loan and leasing receivables (“Receivables”), mostly to foreign investors. According to information published by the Bank of Slovenia, Slovenian banks still have approximately EUR 1.5 billion of non-performing loans on their balance sheets, and we expect to see more of these loans being sold in the next two years. 

Until now, receivables were mostly sold in the form of a “true sale” or a synthetic transfer. 

Securitization can be described as the sale of financial assets (e.g. loans) to a bankruptcy remote special purpose vehicle (“SPV”), which raises funds from investors by issuing securities which generate returns on investment from the cash flow out of the underlying financial assets. 

The benefits of securitization include: (i) the freeing up of bank capital, allowing banks to extend new loans to the real economy; (ii) off balance sheet funding; (iii) lower capital requirements; (iv) profit on sale; and (v) investments being made available to a wider pool of investors.

The reputation of securitization was severely tarnished during the great financial crisis. The December 2017 passing of the new EU Regulation on Securitization, however, which will come into effect on January 1, 2019 (the “Regulation”), has significantly increased the interest of investors and banks in the process.  

One of the key purposes of the Regulation is to re-establish securitization in the European market by ensuring a stable regulatory environment. This should enable a simple, transparent, and standardized securitization process to develop, which in turn would increase investor trust. It aims to clearly define the roles of all parties involved, assure accurate and reliable information for the assessment of risks, and establish transparency during the transaction.

Some of the regulatory aspects that would have to be considered in the securitization process have already been identified by the Slovenian legislator. 

Pursuant to the Consumer Lending Act an investor must obtain a consumer-lending license in order to validly acquire consumer Receivables. The Consumer Lending Act introduced an exemption to this rule in Article 23(4): In the event of consumer Receivables being transferred from a bank to an SPV for the purposes of securitization, a consumer-lending license is not required.

If no new loans are granted, a banking license is not required either.

The Regulation contains measures that ensure the SPV discloses specific information to the investors before they acquire the securities and during the time of the investment, thus allowing the investors to properly assess the associated risks. When disclosing information on Receivables, the issue of banking secrecy has to be considered. 

The Slovenian Banking Act does not contain any explicit exemption on disclosing information that falls within the scope of banking secrecy for the purposes of securitization. However, Article 126(5) of the Banking Act does define an exemption that allows disclosure of information that falls within the scope of banking secrecy if such disclosure is required in order to carry out negotiations to execute or fulfill any agreement which a bank enters into within the scope of its standard banking activities. 

In our view, a solid argument can be made that disclosure of information in the securitization process – i.e., when Receivables are transferred to the SPV and from the SPV to investors – should be treated as an exemption as defined in Article 126(5) of the Banking Act because: (i) transfer of loans to the SPV and investment in securities issued by the SPV should be considered as one transaction (securitization); (ii) securitization should fall within the scope of standard banking activities; and (iii) disclosure of information to investors is required by the Regulation to enable execution and fulfillment of the agreement on acquiring the securities.  

With this recent increased interest and new developments in the area of securitization, and with adequate supporting regulations in place, this could eventually evolve into a stepping-stone on the path towards a more capital markets-based financing in Europe. In the current environment of increasingly stringent banking regulation, securitization could become an increasingly attractive instrument. 

By Maja Zgajnar, Partner, and Maja Sipek, Associate, CMS Slovenia  

This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Of the former Yugoslavian countries, Slovenia was the least penetrated by Russian businesses – a result of mutual caution on both sides. 

The financial crisis of 2012 froze most international investments and the introduction of EU sanctions against the Russian Federation due to the Russian invasion to Crimea, Russia’s support of the illegally armed groups in the Ukrainian East, and the flow of weapons and militants across the border in 2014 resulted in further cooling of Russian-Slovenian economic partnerships.

However, those EU sanctions apply by and large only to the military industry (including dual-use products and technologies and related services and assistance), some financial instruments, and certain entities related to the political and military sector. Thus, private businesses not engaged in military and political activities are, in general, not affected.

Russian and Slovenian governments, however, along with their respective business communities, have lately shown increased interest in promoting and reinforcing mutual investment. Although at the moment the investment inflow from Slovenia to Russia outpaces the investments going the other way, the Slovenian market, as one of the best-performing newcomers to the EU, offers solid business opportunities for Russian investors.

For instance, Slovenian market opportunities are largely tied to the state-owned assets offered for privatization (as listed on the website of the Slovenian Sovereign Holding), particularly in such sectors as banking and finance, tourism, the metal/machinery industry, etc.

Naturally, private enterprises which find themselves stagnant following the financial crisis of 2012 could overcome the recession and regain the competitiveness of their products and services by way of fresh investment.

Foreign investors coming to the Slovenian market should be aware not only of the local legislation governing mergers and acquisitions, but also, as the country is n EU member state, with EU umbrella legislation. The sphere of foreign direct investment (FDI) as part of the common commercial policy is in the EU’s level of competence. Therefore, a foreign investor should consider, along with Slovenian legislation, the possible implications of the EU acquis communautaire. 

In this respect the European Commission plans to introduce new FDI screening requirements that are likely to affect EU interests, particularly in sensitive sectors such as critical infrastructure, technologies, supply, and sensitive information, where the foreign investor is in any way backed up by his/her government (the EU’s list of screening factors is not exhaustive and shall be determined by the Member State concerned). 

A draft Regulation establishing a framework for screening FDI was launched by the European Commission on September 13, 2017 (the “Regulation”). This Regulation is not designed to establish one EU-level mechanism for FDI screening, but rather would oblige the Member States to follow the same standards (including transparency, non-discrimination, setting up the grounds for screening, timeframes, judicial redress, and so on) for screening while coping with FDI in sensitive sectors within national screening processes and to ensure the right of the European Commission or another affected Member State to express their concerns and to obtain a relevant response from the State of investment. 

It is also planned, moreover, that by the end of 2018 the European Commission will undertake an in-depth analysis of FDI flows into the EU focusing on strategic sectors and assets.

Although the adoption of the Regulation is rather controversial and some claim it improperly restricts the freedom of investment, it is most likely that a screening process will be introduced in the EU and thus will be added to the M&A legal “to do” checklist.

In the absence of a valid Bilateral Investment Treaty between Slovenia and Russia (one was signed in 2000 but did not enter into force) and due to the high level of connection between Russian businesses and their government the screening process may become an important legal constraint Russian investors should take into account when considering M&A in Slovenia. 

By Katarina Kresal, Partner, and Anastasiia Poels, Legal Counsel, Miro Senica and Attorneys 

This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The EU has always acknowledged the positive effects of foreign investments into member states and thus has one of the most open regimes in this regard. But in light of recent security issues in Western countries, the EU’s view on foreign investments has slightly changed, and out of concerns for both security and public order direct foreign investments could soon become subject to a so-called “screening mechanism,” in which they would be reviewed by the member state where the investment is planned, by the European Commission, and by other member states.

Some of the member states – including Austria, Germany, Denmark, Finland, Italy, and Poland – have already adopted screening regimes for foreign investments, but without a common legal framework many discrepancies between regimes exist, especially in the scope and procedure. Accordingly, the Commission has issued a proposal for a joint foreign investment control at the EU level which would harmonize the different mechanisms.

Under this proposed regulation, member states would have the right to adopt, modify, or maintain mechanisms for reviewing whether potential foreign direct investments affect or threaten to affect security or public order, especially regarding critical European assets such as key infrastructure and technologies, vital resources, and access to sensitive information or the ability to control it. Pursuant to the proposed regulation, the national mechanisms for screening must be transparent, confidential information must be secured, no discrimination can exist between different third countries, and foreign investors must have legal remedies for improper screening decisions of national authorities. Nevertheless, member states are not obliged to adopt a screening mechanism.

The regulation, if adopted in its proposed form, would authorize (not require) EU member states to maintain mechanisms to screen foreign direct investments on the grounds of security or public order, and would authorize the Commission itself to review any foreign investments that are likely to affect projects or programs in European interest. 

The proposal for establishing a framework for the screening of foreign direct investments envisages a cooperation mechanism and a system for the flow of the relevant information. A member state where foreign investment is expected must provide all required information to the Commission and to other member states. If other member states provide comments or the Commission issues an opinion with regard to the planned investment, the comments or the opinion have to be taken into consideration by the member state where the investment is planned. The proposed regulation also defines time periods in which the interested parties have to conduct their actions.

Slovenia is an open country for foreign investments, and the country endeavors to attract as many foreign investors as possible because of their substantial influence on economic growth. Support for foreign investors is stipulated in the country’s Promotion of Foreign Direct Investments and Internationalization of Enterprises Act. This Act defines supporting measures for foreign investments such as financial incentives, informational support, and so on. These measures are carried out by the national public agency Spirit Slovenija. But as opposed to Germany and some other member states, Slovenia has not yet adopted any rules regarding the screening of foreign investments. And the proposed new version of the Promotion of Investments Act does not stipulate any stricter regime with regard to non-EU investors. 

Even though the screening regime is not yet adopted nor envisaged in Slovenia’s legislation, the Commission has the authority to screen foreign investments that could affect projects or programs in the interest of EU on the grounds of safety and public order. It is not likely that the Commissions’ proposed regulation will take effect before the end of 2018. Until then – or until Slovenia adopts rules on the screening mechanism – direct foreign investments will not be subject to screening in Slovenia. Nevertheless, as the level of regulatory scrutiny is undoubtedly increasing in the EU, it will become increasingly important for non-EU investors looking to acquire important targets in a country to engage with opposing parties and the regulators at the earliest possible opportunity, and factor conditionality and timing implications into their plans.

By Lea Vatovec, Head of Competition, and Matevz Fortin, Junior Associate, ODI Law Slovenia 

This Article was originally published in Issue 4.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.