bne:Newspaper - October 30, 2015

October 30, 2015 www.bne.eu

Russia's Brunswick Rail comes off tracks as CEO suspended over graft allegations

This will be a decisive moment for President Recep Tayyip Erdogan and for Turkey when millions of Turks go to the polls on November 1 to cast their votes in the parliamentary election, the second one in less than five months.

Political and economic stability, the peace process with the Kurds, and Turkey’s fragile

What’s at stake in election is not only AKP future, but future of Turkey

Russian freight leasing company Brunswick Rail has spun off the tracks after senior management were suspended pending completion of an internal enquiry over allegations they received kickbacks and as the company breached loan covenants when its railcars were used in Crimea.

CEO Alex Genin has been suspended and will probably be dismissed due to confirmed "internal

policy breaches," according to a bne IntelliNews company source. However, the company is conducting an internal enquiry to determine the extent of the wrong doing and a formal dismissal is still pending.

Genin and another 10 employees have been

democracy all hang in the balance. The prospect of Turkey plunging deeper into turmoil is not be out of question if Sunday’s elections fail to break the current political deadlock.

The polls are taking place at a time when the

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Kivanc Dundar in Istanbul

Jason Corcoran in Moscow

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Content: 2 Top Stories 6 The Regions This Week10 Chart11 Central Europe14 Southeast Europe17 Eastern Europe20 Eurasia23 Opinion25 Lists24 Lists

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78mn nation is more polarised than ever and its $800bn struggling economy faces numerous challenges, while Islamic State has emerged as a new and serious threat to a country that is already battling Kurdish insurgents who resumed their attacks after a two-year ceasefire collapsed in July.

Even though he is not running in this election, at least officially, the polls are overshadowed by the irascible President Erdogan, founder of the governing Justice and Development Party (AKP), who still rules the party behind the scenes. According to the opposition leader Kemal Kilicdaroglu, Erdogan himself torpedoed the efforts to form a coalition after June’s inconclusive elections.

Most opinion polls have pointed to a yet another hung parliament. And it is far from certain how unpredictable and ill-tempered Erdogan will react if his party fails to win an outright majority this time again.

A nation dividedThe election in July was a blow not only to the AKP that has dominated Turkey’s political scene for 13 years, but also to Erdogan, whose plans to turn the country into an all-powerful executive presidential system were dashed.

Independent pollsters say support for the AKP is stuck somewhere at between 40% and 43% – not enough for the party to win 276 seats in the 550-seat in parliament that would give it the required majority to form a single-party government.

The polls see support for the main opposition, the secularist Republican People’s Party (CHP)

at around 26%-27%. But it was the Kurdish party HDP’s surprisingly strong performance in the last election that deprived the AKP of its majority for the first time since 2002. And in this upcoming election Kurdish votes will again be crucial. The polls show the Kurdish party is set to clear the notoriously high 10% threshold to gain representation in parliament, which many hope will leave the AKP with little choice but to finally accept the bitter reality that the only way to end the current political deadlock is in a coalition with the opposition.

The rising influence of Islam in social life and Erdogan’s increasingly Islamic rhetoric are exactly what the country’s secularists are deeply concerned about. “The CHP will bring an element of modernity that the AKP doesn't have, such as the separation of religion and state. Voters must come together on Sunday and choose a government that will not continue to

What’s at stake in election is not only AKP future, but future of Turkey

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scare and oppress them,” says 32-year-old Ebru, a costume designer.

Ebru is right. Turkish people, and not just a few but a lot, are scared. In a survey in October, Gezici, a polling company, asked the question directly: “Are you afraid of Erdogan?” 68.5% answered “Yes”.

Many middle-class, educated and Western-minded CHP supporters, like Ebru and Tamay, are well aware that the AKP will not be crushed at the ballot box this Sunday. But some people even fear that the AKP government might try to rig the election in its favour. “It's a messy situation and I can't see a way out. The AKP is so unwilling to cooperate with anybody, as proven after the June elections, that this state of affairs is worrisome,” Dr Can Erimtan, an independent scholar in Istanbul, tells bne IntelliNews.

A third round of elections would be a disaster, but a feasible scenario, according to Erimtan who also thinks there might be violence in the Kurdish areas on Sunday.

Only a coalition government, preferably one between the AKP and CHP, is regarded by many as being able to reduce social tensions and put the economy back on track. This is the scenario that the markets have priced in, and business circles and investors would like to see it materialise if Sunday’s election is inconclusive. The economy cannot afford another cycle of elections.

Economy needs stabilityBusiness and consumer sentiment remain fragile, exports have been weak, inflation is stubbornly high, unemployment is more than 9%, and Turkey’s $800bn economy will have to struggle with strong headwinds as an interest rate hike by the US Federal Reserve approaches. The economy’s huge reliance on outside funding and large external debt leave Turkey vulnerable to a possible shift in foreign investor sentiment

and exodus of capital from emerging markets that would be triggered by a Fed rate hike.

However, responsible governance and stability would help reignite the engine of economic growth and restore investor confidence, many argue. “Turkey needs a reform-oriented and pro-business government that will push for structural reforms, get rid of instability and solve the terrorism problem,” said Ozgur Altug, chief economist at BCG Partners, speaking at the rating agency Fitch’s annual conference in Istanbul on October 22. “Whether that government will be a coalition or single-party government is irrelevant, as long as these problems are addressed.”

However, for a coalition government to address the economy’s pressing problems, its partners must cooperate. Moreover, the coalition needs to stay in power long enough to draft, approve and implement these reforms. But how long could a possible coalition of AKP-CHP survive given their sharp ideological differences and if Erdogan continues to interfere with politics? “The wild card is the [nationalist] MHP,” says Erimtan. “Their modus operandi is similar to the AKP's.”

The revival of the peace talks with the militant Kurdistan Workers’ Party (PKK) would be nearly impossible under an AKP-MHP government; the nationalist MHP says there is no Kurdish problem in Turkey and there is only a military solution to the PKK.

The Kurdish conflict will not end unless the state/government and the PKK sit down to the negotiating table. This, however, will not happen until Turkey has a government that is determined to solve this long-lasting problem.

It was Erdogan who actually launched the peace talks in 2013 with the PKK. But he decided to change his tactic in the run-up to the June election, hardening his rhetoric to appeal to Turkish nationalists.


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The government’s arbitrary, unpredictable and increasingly authoritarian rule is also spoiling the business climate. Heavy tax fines have been imposed on businessmen who are critical of the government. Even worse, the authorities have seized companies belonging to Erdogan’s foes, as the Koza-Ipek Group recently experienced at first hand.

Critics say Turkey needs a better legal system to break politicians’ influence over the judiciary. The World Bank reported that Turkey dropped to 55th place out of 189 economies in its latest “Doing Business 2016” ranking from its 51th place in the previous survey. “The only country which saw a noticeable absolute deterioration was Turkey – and the sub-sectors responsible for this are the legal system,” said Charles Robertson from Renaissance Capital in an

emailed comment. “Legal processes are getting longer and resolving insolvency procedures are becoming less effective.”

A stable political environment with a reform-minded government would restore the kind of investor confidence that is key to reviving the country’s economic prospects, say analysts. But be careful what you wish for: some fear that if the AKP regains its parliamentary majority in Sunday’s election, Turkey will move closer to authoritarian rule, threatening to increase the polarisation in the county instead of reducing it. “If the AKP secures 45% votes, they will continue driving home their liberal economic policies and their policies of Sunni-fication,” warns Erimtan, pointing to the fault lines cutting through the Secular-Muslim and religious divides.


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suspended in total as Brunswick investigates whether "attractive terms" were awarded to certain clients, according to company insiders. The money involved is significant but won't "have a material impact on the financials", according to one source close to the Moscow-based company.

Genin, a Harvard graduate who had been in the role just over two years, has been replaced at the helm by American Paul Ostling. Swedish co-founder Martin Andersson also took over as chairman of the board following the initiation of a review of management practices and operations.

A statement provided by Brunswick to bne IntelliNews said the company is taking any breaches of internal policies "extremely seriously"."In the light of our commitment to good corporate governance and transparency and in the interest of conducting the review and implementing any changes in the most effective way possible, we felt it was the right thing to do to immediately terminate the General Director and suspend certain other senior employees pending the results of the review, and to disclose this to the market in a timely manner," the company said. "We note that a number of those employees have since left the company."

Rail freight operators' profitability in Russia has come under enormous pressure as the decline in cargo volumes becomes more acute on the back of contracting domestic demand and as the current railcar surplus drives down freight rates. Rivals GlobalTrans, Freight One and TransContainer are in better shape because they have less foreign currency exposure and have much longer contracts.

Julia Pribytkova, senior analyst at Moody’s in Moscow, told bne IntelliNews that the company is in "high risk of default" on its $600mn Eurobond maturing in November 2017. "They still have money and can generate cashflow for another 18 months according to our estimates, but they have to go for restructuring now urgently," Pribytkova said. "November 2017 is the big problem because it's doubtful they will be able to refinance the bond and then everything will get bleak and gloomy."

Pribytkova believes that a weakening market and constrained access to funding for private rail freight operators will squeeze out smaller and less resilient operators and leasing companies.

In addition, Brunswick Rail admitted on October 12 that a small number of its railcars that are collateral under the loan agreement were used in Crimea by its customers, causing the company to breach certain warranties. This fact may also trigger a prepayment event at the option of the lenders. It is believed that the issue of the Crimean cars may be connected to Genin's ouster.

Russia's Brunswick Rail comes off tracks as CEO suspended over graft allegations


The Regions This Week

The Economic Sentiment Index (ESI) grew in each of the Baltic states in October, the European Commission reported. The ESI for Estonia grew the most, by 1.9 points, to 99.5 points from the September reading of 97.6 points, nearing the 2015 peak of 100.6 points recorded in January. The index for Latvia increased 1.2 points to 102.7 points from 101.5 the previous month; Lithuania‘s grew to 105.8 points from 104.8. The growth in confidence across the region appears not fully aligned with sluggish GDP growth in the Baltic states.

Economic sentiment in Hungary and the Czech Republic deteriorated in October, bucking the regional trend. Slovakia’s ESI jumped the most, rising to 103.8 points in October from 98.1 in the previous month.

Eesti Pank, the central bank of Estonia, warned weakening exports and growing labour costs are reducing the profitability of local companies, putting them at risk of not being able to pay back their loans. This, in turn, could expose Estonia’s banking system to a danger of deteriorating loans portfolio.

The lower house of the Czech parliament approved on first reading a bill that raises gambling taxes as of next year, in a move that would boost budget revenues by an estimated CZK2bn (€74mn).

Czech economic growth is forecast to accelerate to 4% this year from 2% in 2014, the World Bank said in a report issued on October 26. This represents a sharp hike of 1.6pp to the World Bank’s previous estimate announced in June. The increased optimism comes in the wake of strong economic growth posted in the first half of the year.

Hungary’s government will introduce a new special levy on tobacco producers as of next year, Prime Minister Viktor Orban's chief of staff said.

Central EuropeThe measure is said to offset the negative impact of a European Commission decision to suspend progressive rates of a special tax on tobacco companies that is costing the budget HUF10bn-11bn in uncollected revenue, Janos Lazar told a news conference.

Hungary’s Prime Minister Viktor Orban has managed to significantly boost his support in recent months mainly on the back of his tough anti-immigration policy, a new poll by Nezopont Intezet showed on October 28. The results of the poll showed that 43% of the respondents would elect Orban for premier if elections were held today, up from 28% in April.

The Hungarian government is drafting a bill that would oblige large retailers to nearly double their staff, local media claimed. The legislation, expected to come into force as of next year, will deal another blow to the country's large supermarket chains, which are mostly foreign-owned. Retailers are already feeling the impact of a series of new laws that seriously affected their operations.

Poland will use Chinese experiences to revive its stalled shale gas exploration efforts, in line with an agreement on cooperation in mining and geology the two countries signed on October 28. China began exploring for shale gas at roughly the same time as Poland did, yet it is the Asian country that can boast a functioning shale gas industry with about 800 wells drilled to date, which produced 1.3bn cubic metres (cm) of gas in 2014.

Average net profit in the Polish banking sector dropped 19.1% y/y to PLN3.48bn (€810mn) in the third quarter, according to data released by the National Bank of Poland. The result is in line with expectations for a difficult 2015, which could get worse after the opposition Law and Justice (PiS) won the election on October 25. Worries of a bank tax or green light for conversion of FX loans to the Polish zloty appear closer than ever as well.

businessneweurope I Page 6October 30, 2015

Southeast EuropeA Chinese consortium and an Italian company have placed bids to manage Albania’s first free industrial zone, near the coastal city of Durres. A tie-up of Zhejiang Haiteng Investment and Beijing Dongrun Tongbao Technology reportedly offered investments of $1.5bn over nine years for the Spi-talla zone, while details of the Italian bid have not yet been made public.

Bosnia & Herzegovina hopes to apply for EU membership by December 2015, the chairman of the tripartite presidency, Dragan Covic, said. Bosnia’s two entities and the central government signed the 2015-2018 Reform Agenda, required by the EU in the country’s accession process, in July.

Business sentiment has improved in Bulgaria, according to the combined business climate indi-cator which increased by one point m/m in Octo-ber, after falling by 2.9 points m/m in September, statistics office data showed. Sentiment improved in industry, construction, and retail trade, but worsened in services.

The Bulgarian central bank has selected Deloitte Bulgaria for the first ever asset quality review and stress tests of Bulgaria's banking sector. The review should be completed by July 2016.

Croatia has spent HRK70mn (€9.1mn) to manage the refugee crisis so far, the country’s Interior Minister Ranko Ostojic said. Croatia has become a transit destination for asylum seekers following Hungary’s decision to close its border with Serbia.

Kosovo is reviewing the restructuring model for Trepca, the country’s biggest mining complex. Trepca is currently under the administration of Kosovo’s privatisation agency, which has so far failed to come up with a plan for the mine's future.

Moldova’s government will convert emergency aid for three troubled banks into public debt, Finance Minister Anatol Arapu said. MDL14bn (€620mn) or 11.8% of this year’s GDP worth of

emergency aid was extended to the banks by the central bank, and guaranteed by the government.

Net foreign direct investment in Montenegro increased 2.3 times y/y to €485.9mn, the central bank said in its monthly bulletin. Montenegro’s government hopes the strong investment flow will boost GDP growth this year to 4.3%.

Romanian MPs have approved a new investiga-tion into former minister Elena Udrea, on the request of prosecutors. However, they rejected prosecutors’ demand to place Udrea under custo-dy for 30 days while the third probe into the high-profile opposition politician is carried out.

Gazprom chairman Alexey Miller and Srbijagas general director Dusan Bajatovic have signed an agreement on expansion of the underground gas storage facility in Banatski dvor in northern Ser-bia. Expanding the facility from the current 460mn cubic metres to 1bn cm will be an additional guar-antor of the energy stability and security of Serbia.

Gas prices for households will be cut by a fur-ther 10% in Croatia, Economy Minister Ivan Vrdol-jak said. The announcement came less than two weeks before general elections are organised in the country and follows other populist measures announced by the government in a bid to increase popularity.

Six western ambassadors have issued a joint statement calling for the current stalemate in implementing Macedonia's July political agree-ment between government and opposition to be resolved. The diplomats urged the ruling VMRO-DPMNE not to postpone the implementation of the reforms for solving the political crisis.

Fiat Chrysler Automobiles Serbia and Zelezara Smederevo were Serbia’s largest exporters in January-September 2015, with exports of €944.3mn and €247.5mn respectively, the Serbian ministry of finance announced on October 27. The total value of Serbian exports increased by 11.1% y/y in August to €909.5mn.



Eastern EuropeThe IMF is mulling changing its rules to allow “lending in arrears” in order to prevent the de-railment of Ukraine’s bailout package agreed in March if the country defaults on its $3bn Russian bond due in December. Under the IMF’s cur-rent rules, it would have to suspending lending to Ukraine if the government defaults on a sovereign debt.

The Council of the EU has suspended some sanc-tions on Belarus for four months. An asset freeze and travel ban applying to 170 individuals and three entities in Belarus has been lifted although restrictions remain on “four persons involved in unresolved disappearances in Belarus remain subject to restrictive measures,” the Council said as well as an arms embargo.

The international news channel Euronews was seized under lawsuits filed by shareholders of former Russian oil company Yukos, which was appropriated by the Russian state illegally. The Russian state media holding VGTRK owns a 7.5% stake in the France-based company.

Three men close to President Petro Poroshenko are under investigation in Europe for exercising political power in a “shadow government”. Star investigative journalist-turned-MP Serhiy Lesh-chenko named Boris Lozhkin, Poroshenko's chief of staff, Mykola Martynenko, deputy head of the parliamentary group of the Peope's Front party, and Ihor Kononenko, deputy head of the Bloc Petro Poroshenko parliamentary group as exer-cising power beyond their offices.

The EU Court of Justice has ruled to lift EU sanc-tions imposed on Andriy Portnov, former first deputy head of the administration of Ukraine's ousted former president Viktor Yanukovych, in a move that could set a precedent for 18 other officials sanctioned by the EU at the request of Ukrainian authorities.

Russian President Vladimir Putin’s public approv-

al rating rose to 88% in October from 84% the previous month, according to the Levada Center.

Russia’s internet freedom has deteriorated to "not free" in 2015 from "partly free" in 2014, according to Freedom House.

Russia rose from 62nd to 51st place in the lat-est “Doing Business 2016” ranking by the World Bank among 189 ranked economies. But de-spite the gains, Russia's progress in the ranking has slowed, casting doubt on 2012 President's Vladimir Putin's goal of boosting the country to 20th position in the scale by 2018. Belarus rose in the ranking to 44th from 57th place the previous year. Ukraine jumped 13 places to place 83rd.

The Ukrainian authorities have clashed with the IMF over a radical tax cut plan to boost the economy, which could lead either to a decline in tax collection or deterioration of relations with the country's main donor. VAT, corporate profit tax rate, personal income tax rate and payroll tax rate would all be slashed by up to a third under the plan.

Privatbank, Ukraine's largest lender by assets, obtained approval from a London court restruc-ture its $150mn bonds. It will convene a scheme meeting on November 11 aimed at securing the restructuring of the subordinated Eurobond.

Ukraine's state energy company Naftogaz has transferred another $64mn to Russia's Gazprom as prepayment for natural gas as the heating season starts, which means a potential “gas war” could be avoided this year. Previously, the CEO of Naftogaz Andrey Kobolev said Ukraine would complete supply of 2bn cubic metres of Russian gas to underground storage facilities by the end of the week.

Russia's national air carrier Aereflot will expand its fleet by at least 14 jets from its beleaguered rival Transaero.



EurasiaKazakhstan and Uzbekistan are ranked among the 10 economies that have showed the most notable improvement in performance in the World Bank’s “2016 Doing Business” survey. Kazakhstan joined the group of top 10 performers thanks to the introduc-tion of fast-track simplified procedures for small claims and streamlining of the rules for enforcement proceedings. Kazakhstan also stopped requiring businesses to have a seal to run their operations, the report explained.

Kyrgyz President Almazbek Atambayev has granted the Social Democratic Party of Kyrgyzstan (SDPK) a mandate to form a majority coalition. The SDPK party, whose members include the president himself, won the October 4 election, receiving 27.6% of the votes and winning 38 out of 120 seats in the Jogorku Kenesh, the Kyrgyz unicameral parliament.

Japan has signed a number of deals and agree-ments with Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan. The deals were signed as part of Ja-pan’s drive to strengthen economic ties in the region in the context of Japanese Prime Minister Shinzo Abe’s six-nation tour to visit Central Asian countries and Mongolia. The prime minister’s visit is also Ja-pan’s attempt to counter China’s growing influence in the region, as well as boosting leverage with Russia.

The shareholders of TAPI Pipeline Company, which plans to build, finance, own and operate the planned 1,600-kilometre-long Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline, have confirmed their respective shareholding stakes and signed the Shareholders Agreement. The four main gas companies in the countries own an equal share of the TAPI pipeline company, as agreed in Novem-ber 2014 when the company was set up.

Hamburg-based DEA Deutsche Erdoel intends to relinquish its exploration concession in Turk-menistan’s Caspian Sea over frustration at excess bureaucracy and corruption. DEA plans to end its commitments at its Block 23 concession, where the company was granted exploration rights under a

production sharing agreement in 2009. The company has grown tired of “bureaucratic complications” in the country.

Kyrgyz and Tajik authorities are willing to put an end to territorial disputes along the border by sign-ing a land swap agreement in November. Kyrgyzstan and Tajikistan share a 978km border, but only 530km has been delimited. The arrangement will solve 98% of the delimitation issues.

China and Mongolia signed over 100 commercial and industrial agreements, deals, and MoU. The agreements play into China’s New Silk Road initia-tive, a vision to develop trade between China and neighbouring countries across the Eurasian conti-nent. The countries plan to increase bilateral trade to $10bn a year from $6.8bn in 2014.

Kazakhstan is considering imposing a $2bn fine on a BG-Eni-led consortium developing the major Karachaganak field. The figure is roughly the same as the penalty the government threatened to impose in 2010. Back then, the dispute ended in transfer-ring a 10% stake in the project to national oil and gas company KazMunayGas. The government is accusing the consortium of failing to fulfil some of its contrac-tual obligations.

KazMunayGas reported a net loss of KZT665.4bn (€2.1bn) in January-September 2015, more than 10 times the losses it reported in the same period of 2014. A decrease in revenue to KZT246bn from KZT356bn is blamed on the sharp fall in the price of oil this year compared to 2014. At the same time, the company’s operating costs more than doubled to KZT789.4bn. Oil production went down by 1% to 22.5mn tonnes.

The Asian Development Bank has provided an $113mn loan for road construction in Armenia. Part of the loan will be used to retrain transport workers, 25% of who will be women. The loan will have a float-ing interest rate of LIBOR+0.5% and a maturity of 22 years. Meanwhile, the International Bank for Recon-struction and Development (IBRD) will also provide $40mn rural road projects.



bne Chart

Central and Eastern Europe and the Common-wealth of Independent States’ (CEE/CIS) coun-tries performed particularly well in the World Bank's "Doing Business 2016" survey, with nearly all countries within the region enjoying an increase in their ranking.

As the first bne:Chart shows, when indexed against 2010 scores, CEE/CIS countries have far outperformed the EU in terms of improve-ments in the distance to frontier (DTF) value from 0 to 100. Germany, on the other hand, ac-tually got worse.

CEE/CIS nations made up only 16% of the total number of countries studied, yet accounted for seven – or 29% – of the 24 countries that

improved in three or more areas in this year’s report.

The top 10 ranked countries in the CEE/CIS re-gion were: Macedonia (12), Estonia (16), Lithu-ania (20), Latvia (22), Georgia (24), Poland (25), Slovakia (29), Slovenia (29), Armenia (35) and Czech Republic (36).

Russia just missed out on entering the world's top 50 economies in the World Bank's "Doing Business 2016" survey, ranking 51st out of 189 countries. While President Vladimir Putin had targeted 50th slot this year (taken instead by Peru), the position still marks an improvement on last year's assessment, which put Russia in 62nd place.

CEE/CIS countries perform well in "Doing Business 2016" survey


Poland’s rightwing PiS takes control of all branches of govt

have suggested that the party has learnt from its short tenure in 2005-07 and will moderate its policies, though its election promises do not give much hope. PiS’ flagship proposals in the campaign include a reduction of the retirement age, taxes to be levied on banks and large retail chains, and considerable increases in social expenditures, such as generous child benefit.

“My post-election policy view [is] most big ticket economic policy ideas will not be implemented, and the rest will be watered down,” PKO BP's chief economist Radoslaw Bodys told bne IntelliNews shortly before the election. “The retirement age is unlikely to be reduced and the mega child benefit hike is unlikely to happen, but the banking and retail taxes are likely to be implemented.”

Unlike in the case of a coalition with hardly predictable Kukiz’15 or Korwin, the stability of a PiS-led government could be a plus, suggest others, but may come at a cost. “An outright majority for PiS would inevitably bring a more stable government and a smoother decision-making process,” analysts at RBS note. However, they note that, “an outright majority should in fact make it harder for PiS to back down on its election promises.”

Apart from PiS’ winning majority, the other big change in the parliament will be that it will be the first parliament in democratic Poland not to feature a leftist party. A coalition of Social Democratic Left Alliance (SLD), Your Movement (TR) and the Green Party only managed to win 7.5% of the vote, below the 8% threshold required

Central Europe

bne IntelliNews

The opposition rightwing Law and Justice (PiS) will have control of all branches of Poland’s political institutions, after winning a majority of in the lower house of parliament in the October 25 election, adding to its majority in the upper house and also the presidency.

With the backing of President Andrzej Duda, a former party member, PiS is now in the strongest position a party has ever enjoyed in post-communist Poland, allowing it to reshape the nation along a vision that combines Catholic conservative morality with plans for more state intervention in the economy.

Prior to the election, analysts argued that a single-party PiS government would be more favourable than a potentially unstable coalition with anti-establishment Kukiz’15 or Korwin – the parties tipped most likely to team up with PiS should it not win a majority. The previous ruling Civic Platform (PO) came in second with 23.6% of the vote, well behind PiS with 37.6%, and will now be the biggest opposition party. PiS succeeded in painting its rule as a failure, despite the economy being one of Europe’s strongest during its tenure.

PiS chairman Jaroslaw Kaczynski, the man behind the throne, said on election night he would seek to “extend our hand to all those who want a good change, who want to change in Poland”. Kukiz’15 was likely target of the offer.

Despite concerns that a PiS-only government would lead Poland off track, the markets have appeared to come to terms with a PiS-only government for some time now. Some analysts


PO’s coalition partner during the last eight years, the agrarian party PSL, won 5.2% and will not be certain of winning seats in the Sejm until official results are released.

Central Europe

for coalitions. On the other hand, a young leftist party Razem (Together) surprisingly won 3.9%, giving it access to budget financing and making it potentially a new leftist force on the rise, at the expense of the fading old-timers from SLD.

Hungary’s Prime Minister Viktor Orban has managed to significantly boost his support in recent months mainly on the back of his tough anti-immigration policy, a new poll by Nezopont Intezet showed on October 28.

The results of the poll showed that 43% of the respondents would elect Orban for premier if elections were held today, up from 28% in April. Orban has a strong lead over opponents, who managed to score only 7% support. That is the share of respondents who said they would vote for Gabor Vona, the leader of nationalist Jobbik party, to be the head of the government. In April support for Vona stood at 13%. Ferenc Gyurcsany, leader of the leftist opposition Democratic Coalition (DK), would also be the choice of 7% of the respondents, a decline from 10% in April.

The poll results suggest Orban has successfully seized the political opportunity provided to him

by the migrant crisis to stem the slide in his party’s popularity. Orban claims the influx of Muslim refugees poses a threat to Europe’s Christian identity.

While this approach seems to be working at home, it has earned him international criticism. Orban’s government has come under fire for building fences along its borders with Serbia and Croatia, and for enacting tougher new laws that make illegal border crossings a criminal offense punishable by up to three years in jail.

More than 383,000 migrants have entered Hungary so far this year on their way to Germany and other western EU countries. Budapest claims that number is expected to reach 600,000 to 700,000 by the end of the year.

Hungarian PM Orban boosts poll lead with tough anti-immigration policy

bne IntelliNews Photo: blphoto1


Central Europe

The Czech competition watchdog UOHS has given the green light to the sale of RPG Byty, the largest private provider of rental housing in the country, local media reported on October 27.

RPG Byty has been taken over by Luxembourg-based company Fondy Bydleni, UOHS spokesman Martin Svanda told CTK. He declined to provide information about who is the owner of Fondy Bydleni. According to recent media reports, it is owned by US private investment group Blackstone Group.

Ever since controversial Czech tycoon Zdenek Bakala announced in August he agreed to sell RPG Byty, the deal has attracted strong media attention. On the one hand, it reopened the debate over privatisation of the Czech mining industry, while on the other hand there’s been speculation to who is the new owner of RPG Byty.

Initially RPG Byty, which manages 43,000 flats formerly provided to Moravian miners at the OKD coal mines, was said to be acquired by Fondy Bydleni, a unit of Round Hill Capital. Later reports in the media claimed Blackstone Group emerged as the buyer.

Via partly owned Domus, Bakala acquired RPG Byty - which with 2.6mn square metres is the largest private provider of rental housing in

the country - from the state in 2004, along with coal miner OKD. The mining company is now held by NWR, in which Bakala is also a major shareholder.

The businessman, who dropped out of Forbes' billionaire list for 2015, is these days one of the most unpopular figures in the Czech Republic. He is accused of ignoring a pledge made during the privatisation of the company to offer the flats to former miners at low prices.

OKD is now part of NWR which went through a painful capital restructuring last year to avoid bankruptcy. Bakala is also criticised for extracting some €2bn in dividends from the coal miner during the boom years and then threatening cutbacks when coal prices fell. A plan to shutter the Paskov mine was averted following lengthy negotiations with the government over state support last year.

The future of the mine is still uncertain because of the continued weakness in coal prices. Prime Minister Bohuslav Sobotka said on October 5 that the government is ready to renegotiate the deal it made with NWR to keep the Paskov mine open.

Earlier in October, a Czech court opened a trial over the privatisation of OKD on charges the company’s value was massively underestimated.

Czech regulator oks sale of largest private landlord to reportedly Blackstone

bne IntelliNews


Southeast Europe

Moldova plunged into chaos as second govt in a year collapses

involved in the frauds at Banca de Economii, as well a contracting loans from the bank.

With 42 MPs between them, the two pro-Russian opposition parties needed the support of only nine other MPs to oust the government. The result was expected, after PD leader Marian Lupu said his party would vote against the government unless Strelet agreed to stand down.

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Moldova’s parliament voted to dismiss Prime Minister Valeriu Strelet and his cabinet on October 29, making it the second government to collapse since the November 2014 general election. Strelet lost the no-confidence vote when the Democratic Party (PD), part of the ruling coalition, voted with the opposition.

The collapse of the latest government plunges Moldova back into political uncertainty. The pro-tracted periods of uncertainty and constant politi-cal infighting have prevented successive govern-ments from moving forward with much needed reforms, in particular on judicial reform and tack-ling corruption in this impoverished part of Europe that is in the sights of Russia.

It took almost three months to form a government after the November 2014 election. The govern-ment formed under Chiril Gaburici lasted just four months, when the prime minister was forced to resign over allegations he had forged his school diploma. Strelet’s government, formed on July 30, has had an even shorter lifespan.

Strelet lost the vote with 65 of Moldova’s 101 MPs - from the PD, the Socialist Party (PSRM) and the Communist Party (PCRM) - voting against him.

The motion was submitted by MPs from the PSRM and PCRM on October 22. The two parties accused Strelet of involvement, through his company, in the corruption scandal related to $1bn frauds at three Moldovan banks - Banca de Economii, Banca So-ciala and Unibank. They claim that Strelet’s firm had dealings with Caravita, a company allegedly controlled by former Prime Minister Vlad Filat and


Southeast Europe

The fragile pro-EU coalition started to fracture when Filat, leader of the senior ruling PLDM, was arrested on October 15 in connection to a massive banking fraud that saw $1bn siphoned off from three Moldovan banks.

Eight days later another high-profile politician, Renato Usatii, the popular mayor of Moldova’s second city Balti, was detained by police after publishing a taped conversation between Filat and businessman Ilan Shor, a key suspect in the bank-ing scandal, on his Facebook page.

This autumn, Moldovans have increasingly ex-pressed their frustration with the deteriorating political situation by taking to the streets. Up to 40,000 people joined a demonstration organised by the Dignity and Truth (DA) civic platform on

September 6, while around 20,000 turned out for a rally organised by left-wing groups on September 27. The two groups have set up rival tent cities in Chisinau - outside the main government offices and the parliament respectively.

Given the worsening relations among the three pro-EU parties, the most natural alliance within the five-party parliament, prolonged negotiations are expected and Moldova could be heading for early elections.

If the parliament fails to endorse a new prime minister, under the constitution the president has to dissolve the legislative body and call early elec-tions. Early elections would also be called if two successive nominations are rejected.

Leaders of EU member states and Southeast European countries on the main migration route to western Europe agreed on a 17-point refugee action plan late on October 25. The plan is intended to provide an immediate, comprehensive and joint response to the ongoing refugee crisis that has affected the entire continent.

Hundreds of thousands of refugees and illegal migrants have arrived in the region in recent months as conflicts in the Middle East and North Africa have escalated. Southeast European countries including Croatia, Serbia and Slovenia

have been forced to take on much of the burden recently, after the Hungarian government closed its borders with neighbouring states in September and October. This has put a strain on relations between Brussels and countries in the region - both existing EU member states and would-be members.

The leaders of Albania, Austria, Bulgaria, Croatia, Macedonia, Germany, Greece, Hungary, Romania, Serbia and Slovenia, as well as representatives of EU institutions, met in Brussels at the European Commission's Berlaymont headquarters on October 25.

EU, Western Balkans leaders agree action plan for refugee crisis

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Photo: Chat des Balkans


Southeast Europe

The European Commission announced in a press release issued immediately after the meeting that leaders had agreed to implement the 17-point action plan’s operational measures from October 26.

The 17 points cover the permanent exchange of information, limiting secondary movements, supporting refugees and providing shelter and rest, managing migration flows, border management, tackling smuggling and trafficking, information on the rights and obligations of refugees and migrants and monitoring.

The EC said in a statement that the past weeks have shown that the challenges currently faced along the Western Balkans migration route will not be solved through national actions, and that only a collective, cross-border approach based on cooperation can succeed.

The day before the Brussels meeting, the Prime Ministers of Bulgaria, Romania and Serbia agreed at a meeting in Sofia that if other EU member states closed their borders to migrants, they

would do the same to avoid becoming a buffer zone. “If Germany and Austria or other states close their borders for migrants, we won’t allow our countries to become a buffer zone for millions of migrants stranded between Turkey and the new barriers that may follow ... We’re also prepared to close our borders immediately,” Bulgarian Prime Minister Boiko Borissov told reporters in Sofia according to Bloomberg.

According to the European Agency for the Management of Operational Cooperation at the External Borders of the Member States of the European Union (Frontex), more than 710,000 refugees and migrants crossed the EU’s external borders in the first nine months of 2015 while only 282,000 were recorded in the whole of 2014. A record number in monthly terms was recorded in August when numbers reached 190,000, while in September it stood at 170,000.

However, these figures only include people that have been registered. The real number is higher as hundreds of people travel through so-called “green borders” and avoid registration.


circumstances surrounding a payment of CHF2mn ($2mn) he received from Fifa in 2011.

"There was an election by secret ballot," Swiss-born Blatter said. "Four votes from Europe went away from the USA and so the result was 14 to eight. If you put the four votes, it would have been 12 to 10."

Several countries, including England, spent large sums on their bids to host the next world cups. Blatter's comments drew an angry response from English Football Association chairman Greg Dyke, who said the FA would now investigate the possibility of recovering GBP21mn ($32mn) it had spent on the failed bid.

"We will look in detail at what Mr Blatter says. I suspect the response [from him] will be 'I was misquoted', but if he says that then I think there is something to investigate," Dyke said on October 28 after the TASS interview was published.

"There's nothing Mr Blatter says that surprises me much. If he is saying 'we wanted Russia' and it looks like he wanted that fixed before the vote, it's suggesting that it was all fixed anyway," Dyke added in remarks reported by the Guardian newspaper.

However, Blatter dismissed earlier English objections to the Russian win, saying the country never stood a chance of bagging the 2018 championship: "Bad losers. In Great Britain they have made this beautiful game, they have

Eastern Europe

Blatter: Russia was chosen as 2018 World Cup host before voting

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The award of the 2018 World Cup to Russia was decided before voting began, the suspended president of the world footballing body Fifa, Sepp Blatter, has said, drawing an angry response from other bidders who spent millions on their bids to host the event.

The 2018 and 2022 World Cups were awarded to Russia and Qatar respectively in December 2010, by Fifa's executive committee. But Blatter claimed in an interview published on October 28 that an agreement was in place to award the tournaments to Russia and the US before voting had begun.

"In 2010 we had a discussion of the World Cup and then we went to a double decision," said Blatter, who served as Fifa president since 1998, but is currently suspended during an investigation into corruption. "For the World Cups it was agreed that we go to Russia because it's never been in Russia, eastern Europe, and for 2022 we go back to America. And so we will have the World Cup in the two biggest political powers."

However, former French president Nicolas Sarkozy then threw a spanner in the works in a meeting with then crown prince of Qatar, Tamim bin Hamad al Thani, at which the Gulf state's bid as host gained prominence. Qatar displaced the US also after the prince held talks with Blatter's estranged colleague and also recently suspended current president of Uefa, Michel Platini.

Fifa's ethics committee earlier in October banned Platini for 90 days while it investigates the


Eastern Europe

Ukrainian nation is wise enough and Ukrainian politicians are responsible enough to form these pro-Ukrainian coalitions."

Are these words an attempt to put a brave face on a sorry situation? Undoubtedly.

According to exit polls published by the Petro Poroshenko Bloc on October 26, the party is suffering from a 5-10% decline in its popularity in Ukraine’s southern and central regions compared with the results of last year’s parliamentary elections. In eastern regions it is often unable to compete with the pro-Russian Opposition Bloc and Vidrodzhennya party, which is supported by oligarch Ihor Kolomoyskiy.

Even more importantly, the People's Front, headed by Prime Minister Arseny Yatsenyuk, did not participate at all in the local elections due to a collapse in its ratings over the past year. Instead, its politicians sided with the Poroshenko Bloc on the ground, under agreement that Yatsenyuk's party will get up to 25% of places in the Bloc's elections lists.

Local elections in Ukraine pave way for parliamentary crisis

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Local elections in Ukraine, held on October 25, predictably demonstrated a decline in public support for pro-Western political forces headed by the current president and prime minister. This outcome could trigger manoeuvring among other political players, including members of the ruling coalition, aimed at forcing snap parliamentary elections. However, President Petro Poroshenko and leading politicians from his Bloc appear prepared for such a scenario.

Visiting a polling station with his wife in Kyiv, Poroshenko told journalists that the local elections should complete the "reload" of the country's authorities, who took power after the Euromaidan protests in Kyiv in 2014 brought the ouster of former president Viktor Yanukovych.

"It is important to form pro-Ukrainian coalitions in local councils, preserving the principle of political competitiveness at these elections," Poroshenko added. "We shouldn't give a single chance to the aggressor [Russia] to destabilise the situation from inside the country. I am confident that the

introduced fair play. But there was only one vote going for England. They were eliminated in the first round. Nobody wanted to have England."

Blatter moved to step down as Fifa president after Swiss prosecutors in May launched an investigation into suspected criminal mismanagement and money laundering in the allocation of the 2018 and 2022 World Cups. Data

and documents were seized from Fifa's Zurich headquarters and 10 officials who took part in voting were detained for questioning.

Russian President Vladimir Putin has continued to publicly defend the longstanding Fifa head, and rejects allegations that Russia was improperly awarded the 2018 World Cup.


Eastern Europe

party headed by former prime minister Yulia Tymoshenko, looks ready to become one of the main driving forces of this process. “This parliament has no right to exist, because it does not serve the people, it does not feel responsibility [for the country],” Tymoshenko said in an interview with Inter TV in July.

"They are already rocking the boat," Ihor Kononenko, a 50-year-old businessman and first deputy head of Poroshenko's Bloc in parliament - and is regarded as a 'grey cardinal' for his leading role in unofficial negotiations with other parliamentary factions - told bne IntelliNews on election night, pointing to the behaviour of other members of the ruling coalition.

However, just one year ago, the parties of Yatsenyuk and Poroshenko jointly secured almost 45% support during parliamentary elections. When now, for instance, the Poroshenko Bloc gains around 20% in many central and southern regions (according to its exit poll), many Ukrainian experts interpret this as a decline of more than 50% in the tandem's popularity.

With the political forces of Poroshenko and Yatsenyuk losing so much ground, other parties seize the opportunity to declare that the composition of the current parliament does not meet the moods of society, and that radical changes are needed through new elections. Batkivshchyna (Fatherland), the

Lukashenko pardoned six jailed opposition activists, including Nikolai Statkevich, who was sentenced to six years in jail after running for the presidency in late 2010. In October, Lukashenko stormed to a declared 83% landslide election victory that extends his rule to more than 25 years since he came to power in 1994.

The Council underlined that the release of the political prisoners was a long-sought step by the EU, and the decision to suspend most restrictive measures was aimed at "encouraging further positive developments" that would lead to an improvement of EU-Belarus relations.

"The EU will continue to closely monitor the situation of democracy and human rights in Belarus," the statatement reads.

EU partly suspends Belarus sanctions for four months

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The Council of the European Union (EU) has suspended for four months the asset freeze and travel ban applying to 170 individuals and three entities in Belarus, the Council said on October 29.

However, some restrictive measures that were due to expire on October 31 were prolonged for four months, until February 29, 2016. "Four persons involved in unresolved disappearances in Belarus remain subject to restrictive measures. The arms embargo also continues to apply," a Council statement reads.

The decision was taken in response to the release of all Belarusian political prisoners on 22 August and in the context of improving EU-Belarus relations, the statement added.

In August, Belarusian President Alexander


Institutions and Human Rights of the Organisation for Security and Cooperation in Europe (OSCE/ODIHR) recommended that it send a monitoring team to Baku, but in the end OSCE cancelled its delegation because of an inability to agree on the number of delegates - the ODIHR asked for 300, Baku insisted on 125.

In an unexpected last-minute move, however, on October 26 the Parliamentary Assembly of the Council of Europe (PACE) announced that it would also send a 30-person delegation to Baku to monitor the elections, thus giving more legitimacy to an election monitoring process that was beginning to look like a charade.

In the current parliament, YAP holds 66 of the 125 seats, while independent MPs hold 42 and the representatives of 10 opposition parties hold a combined 13 seats. Four of the 125 seats are empty. Furthermore "women are underrepresented in public office", the ODIHR notes, "holding some 16% of seats in the outgoing parliament and only one of 42 ministerial posts".

This year's election is anti-climactic even by Azerbaijani standards. "I remember that in 2010 there was more of an electoral atmosphere ahead of the elections," Arastun Orujlu, director at the East West Research Centre in Baku, reminisced. "This year, even educated people - doctors and teachers, are unaware of the fact that there will be voting on Sunday," he said.

Some of the government-mandated opinion polls, such as the one conducted by French market research company Opinionway, indicate a high level of support for the government, but Orujlu

Eurasia

Aliyev ensures no competition at Azerbaijan election

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Preparations for the November 1 parliamentary election are in full swing in Azerbaijan. But the result will be a foregone conclusion, with the governing New Azerbaijan Party (YAP) certain to once again secure a majority, just like it has done at every election since 1993.

While there could be some rigging of the elections in the notoriously corrupt and dictatorial country, it is hardly necessary at this point, because during his 12-year tenure at the helm of the country, President Ilham Aliyev has stifled dissent to such an extent that the ruling party faces little competition.

Besides, opposition voices have been complaining about irregularities and government bullying throughout October, the period when candidates were allowed to register as contenders for the 125 seats in the Azerbaijani parliament, the Milli Majlis (National Assembly). Most of the work to prevent inconvenient candidates from running in the election in the first place has already been done before the polls even opened.

Over 5mn Azeris have the right to cast a vote this coming Sunday, to select 125 parliamentarians out of over 1,200 candidates. But that choice is largely imaginary and will bring little in the way of tangible improvements to life in Azerbaijan. Sunday will most likely bring another landslide victory for YAP, the fifth out of five parliamentary elections in Azerbaijan's short sovereign history.

The country's Central Election Commission (CEC) reported that 465 observers representing 53 countries would monitor the conduct of the election. A report by the Office for Democratic


Eurasia

lack of transparency in political processes in Azerbaijan.

A running joke in Baku has it that elections in Azerbaijan are as free as those in Sudan. That is because the former Sudanese ambassador to Baku said on state television after the 1998 presidential election that "elections in Azerbaijan are fair and free, just like in my country". It is a sad state of affairs that the same statements are applicable to Azerbaijan 17 years later, but nothing will change until Baku does not change the company it keeps and mends its ways. In the meantime, Khartoum will continue to be a closer reference point to Baku than Brussels.

gives little credence to such results.

"There is an economic crisis in Azerbaijan, living conditions have significantly worsened since last year, so it is hard for me to believe that 78% of the Azerbaijanis are genuinely in support of the government. But we all saw what happened to the former minister of security, Eldar Mahmudov. If even ambitious ministers are sacked when they contravene the ruling elites, how can we expect normal people to express their sincere opinion about the government?" he wondered. Orujlu was referring to the unexplained sacking of former National Security Minister Eldar Mahmudov a week ago, another incident that speaks to the

was summoned as a witness and questioned, but he ridiculed the transcript and called the issue “foolish [and] absurd”.

The interrogation capped a week of political mud-slinging in Georgia which has monopolised the media, inflamed social networks, and will do little to attract the foreign investors that the South Caucasus nation sorely needs.

In one sense, it is just a continuation of the polarisation that has characterised Georgian political culture since Bidzina Ivanishvili’s Georgian Dream coalition came to power in October 2012. But coming on the back of the government’s poor showing in recent polls, amid the country’s current economic difficulties, and with Georgia due to hold parliamentary elections in mid-2016, the antagonism has assumed a renewed intensity.

The Georgian Dream coalition came into being with the express purpose of driving Saakashvili’s United National Movement (UNM) from power. But since winning power, it has struggled to replace opposition to the UNM with a coherent ideology

Georgia begins winter of discontent earlyMonica Ellena in Tbilisi

November is often a turbulent month in Georgia: most famously, that was when the Rose Revolution began in 2003. But November has come early to Tbilisi this year, and the acrimony that fuels so much Georgian politics is already escalating dangerously.

On October 24 the Georgian State Security Service (GSSS) announced the launch of a probe into media reports that former president Mikheil Saakashvili, who came to power in the Rose Revolution, was plotting a coup against the authorities. The investigation follows the publication of an exchange the now-exiled Saakashvili allegedly had with his former national security advisor, Giga Bokeria, in Istanbul airport, with the two reportedly discussing plans to trigger mass civil protests aimed at overthrowing the government.

The conversation surfaced on “Ukrainian WikiLeaks” – an obscure website registered in Russia with a track record of publishing stories against the former Georgian leader, who is wanted in Georgia on charges of abuse of power, which he deems politically motivated. Bokeria


Eurasia

or vision. Saakashvili’s current high profile in driving reform in Ukraine may have made matters worse. As the parliamentary elections begin to loom, reminding voters of the UNM’s misdeeds in power therefore may be one way of resuscitating Georgian Dream’s support.

The polarisation has also politicised a legal battle over the ownership of pro-UNM television station Rustavi 2, the country’s most popular, which could damage media freedom in the country.

While the secret service was investigating the alleged planned UNM coup, hundreds gathered on October 24 in the capital Tbilisi to protest at what they see as a government attempt to shut down Rustavi 2. Demonstrators waved banners reading “Hands off from Rustavi 2” outside the TV stations’ studios and accused the authorities of undermining media freedom.

In an interview with bne IntelliNews on October 16 Prime Minister Garibashvili dismissed the accusation of meddling with the media, but support of Rustavi 2 has now spread beyond Georgia’s borders and senior officials are now asking for calm.

In a statement released late on October 26, the EU delegation in Tbilisi and ambassadors from EU states said there are “concerns to be addressed”. Without commenting directly on the merit of the Rustavi 2 case, the release stressed that the “current political tension in Georgia” underlines the importance of building upon “the reforms achieved so far” and ensuring “fully functioning democratic institutions,” adding that as part of the implementation of “the Association Agreement, we have increased our support to Georgia, but also our scrutiny”.

float of between 25% and 38%, and will value the company at £257mn-347mn.

GHG is the product of its spin-off from Bank of Georgia Holding (BoGH), the parent company whose primary business is Bank of Georgia, that was carried out in spring 2015. In November 2014, the country’s central bank decided to tighten regulations and force banks to ditch non-financial assets.

Healthcare has proved to be a good bet for BoGH since it began developing the business in 2006. GHG now owns the largest market share of 21% with 2,200 beds, and in the first half of 2015 reported a standalone profit that almost tripled from the year before to GEL12.9mn (€4.86mn). Revenues grew to GEL107.4mn from GEL94.8 in 2014.

Georgia Healthcare Group gears up for €480mn London IPOMonica Ellena in Tbilisi

Georgia Healthcare Group (GHG), the country’s largest healthcare provider, is gearing up to float on London’s stock exchange, setting a price range that could value the company at as much as £347mn (€480mn). GHG will join one of several Georgian companies on the LSE and is part of growing trend of emerging market healthcare groups looking to take advantage of global investor appetite.

GHG, which owns 42 hospitals and is the largest medical insurer in Georgia, announced a price range of between £2.15 and £3.15 for its initial public offering. The final pricing will be announced around November 6, with trading expected to kick off November 11. The group forecasts the deal will raise around £65mn from the placing of between 28mn and 45mn shares, meaning a free


Opinion

Liam Halligan in London

Mario Draghi is being hailed, once again, as a rhetorical wizard. The president of the European Central Bank has done it again.

After the October meeting of the ECB’s Governing Council, Draghi dropped hints the Frankfurt-based bank would soon be unleashing yet more quantitative easing across the Eurozone, further lowering interest rates, or both.

No matter that the ECB has been churning out €60bn of virtually printed money a month since March and is committed to do so until September 2016. That’s a Euro-QE programme of €1,100bn – an astonishing 8% of the Eurozone’s annual GDP.

No matter, also, that the ECB’s benchmark interest rate is 0.05%, with the central bank deposit rate at minus 0.2% – both record lows – or that Draghi has previously said such rates were at “their lower bound”. The ECB is now “vigilant” – a trigger word previously pointing to imminent policy action.

On cue, stocks and bonds rocketed in expectation that, at its next meeting in December, the ECB will unleash an additional stimulus. The Europe-wide Stoxx 600 share index closed 2% up, with Italian and Spanish benchmark 10-year yields dropping to their lowest levels since April.

Across much of “New Europe”, too, share prices rose. With the European Bank for Reconstruction and Development predicting little overall regional growth this year, and a lacklustre 1.4% expansion in 2016, Western Europe’s performance is vital.

It’s difficult to envisage a meaningful upswing in Central, Eastern and Southeast Europe, in fact, unless the Eurozone is buoyant. “The outlook for our region is improving on the back of Eurozone monetary easing – there is definitely scope for optimism,” the EBRD said, when releasing its last round of economic forecasts in May. “But the on-going Russian recession is cause for concern”.

When Eurozone QE began earlier this year, EBRD economists moved quickly to upgrade their growth forecasts for Poland, Slovenia, Hungary and the Slovak Republic, a move the institution said, “mainly reflected the Eurozone monetary stimulus”. We could soon see a similar uprating of regional growth projections – by the EBRD, other multi-laterals and a range of commercial institutions – if Draghi delivers on his pledge.

The ECB supremo has now taken on the air of a rhetorical magician. Back in mid-2012, when the single currency was imploding, the smooth-talking Italian pledged to do “whatever it takes” to save the euro. Previously febrile bond markets calmed in response, and Eurozone officials and politicians claimed the crisis was “solved”. So effective has Draghi been, his supporters point out, that he hasn’t even needed to implement the so-called Outright Market Transactions programme, a more sustained form of central bank sovereign bond-buying. Just the prospect that he might has held bond markets in check across the Eurozone’s fragile “periphery”.

Amidst the QE sugar-rush, though, think twice before swallowing Draghi’s money-printing

INVISIBLE HAND:

Rhetorical wizard Draghi conjures up a QE battle

Photo: miqu77


Opinion

kool aid. “Deflation” is often cited as the main motivation for QE – in the US, UK and Eurozone – but this is actually nonsense. Yes, Eurozone inflation was negative in September, at minus 0.1%, down from 0.1% the month before – and that’s below the 2% target. But take out the 50% oil price drop over the last and much lower food prices too, both of which will soon fall out of the numbers, and Eurozone inflation was easily positive last month, at around 1%.

The real reasons for QE are rather different. Western politicians are certainly determined to keep the asset price rally going, pushing further into the future the inevitable market turmoil when the money-printing (and the prospect of future money-printing) finally ends. Central bankers seem happy to oblige, even though such blatant bubble-blowing, history suggests, is unlikely to end well.

In addition, the big QE banks in London, Washington and Frankfurt, along with Tokyo and Beijing, are engaged in an ongoing currency war – all of them trying to secure a more competitive exchange rate to boost their exports. Western nations have the further incentive of QE-ing their way to weaker currencies to reduce the burden of the “hard currency” debts they owe to the rest of the world.

Draghi’s next move probably now depends on America’s mighty Federal Reserve. If America’s central bank does finally raise rates for the first time since 2006 in early December, as expected, the euro would fall against the dollar. That, in theory, makes additional euro-QE less likely.

I suspect the Fed won’t put up rates, though. In fact, we could yet see another large dollop of US money-printing – QE4 – which would pressure on Draghi to respond, turning his vigilance into action.

It may be, though, that Draghi and his political masters are so determined to depreciate the euro that the ECB prints more even if the Fed does puts up rates, reinforcing the rising-dollar-falling-euro trend.

Whatever happens, exchange rate movements across New Europe will have little to do with actual trade flows over the coming months, amidst an ongoing QE battle between the world’s most powerful central banks.

Liam Halligan is Editor-at-Large of bne IntelliNews. Follow him on @liamhalligan


bne: Infrastructure

Weekly Lists

China and Mongolia sign over 100 commercial and industrial deals

China and Mongolia have signed over 100 commercial and industrial agreements, deals, and memorandums of understanding (MoUs) during the first Mongolia-China Expo hosted in Hohhot in the Inner Mongolian Autonomous Region of China, Mongolia’s news website Monstame.mn reported October 27.

The deals and the Expo are part of a larger initiative to increase economic ties between the countries based on of the Joint Declaration on the Development of Comprehensive Strategic Partnership signed between the leaders of the two countries during Chinese President Xi Jinping’s visit to Mongolia in August 2014. The agreements also play into China’s New Silk Road initiative, a vision to develop trade between China and neighbouring countries across the Eurasian continent.

Below is a selection of stories from bne's lists. bne offers a variety of daily, weekly and monthly lists to subscribers, including: daily lists for Russia, Turkey, Ukraine, Central Europe, Southeast Europe and Eurasia; the weekly lists Banker, Deal, Credit, Investor, Stocks; and monthly lists Real Estate and Infrastructure. For more information, please visit the website at www.bne.eu.

Banks reluctant to lend Bulgarian Energy Holding €650mn without state guarantee

Two final bids filed for maintenance of Dures-Kukes motorway in Albania

The plan of state-owned Bulgarian Energy Holding (BEH) to raise €650mn in debt financing might fail as lenders seem reluctant to fund it without a state guarantee on the loan. The government has so far declined to provide a state guarantee on the loan, but it still possible to change its opinion during the parliament discussions on the proposed 2015 budget revision.

By the end of the October 26 deadline, BEH had received only two bids although 12 lenders had expressed preliminary interest to finance the group, Capital Daily reported, quoting sources. One of the offers was reportedly made by a consortium of Citibank, HSBC, ING, Societe Generale, and Unicredit. The tie-up offered a €500mn bridge loan under the condition that it is guaranteed by the state. The consortium did not require a guarantee for a subsequent bond issue to take place in six to twelve months depending on market conditions.

A Chinese company and a Turkish-led consortium filed final bids in the second stage of the tender for the maintenance of the Durres-Kukes highway on October 29, news agency ATA reported.

The final stage of the tender was prolonged for two weeks after the shortlisted companies and consortia requested more time to prepare their financial offers. The Durres-Kukes will be the first tollroad in Albania with toll fee set at €5. It was one of the most expensive investments in Albania, with a cost of around €1bn.

Financial offers were sent by China Communications Construction Company and a consortium of Turkey’s Vendeka Bilgi Teknolojileri and Albania’s Salillari, two of the four shortlisted bidders, ATA said.


Cetin, the recently spun-off infrastructure unit from telecommunication company O2 Czech Republic, plans to invest CZK22bn (€812mn) over the next seven years, CEO Petr Slovacek said on October 27.

The largest Czech investment in data infrastructure over the past 15 years will strengthen the capacity of Cetin’s LTE network, Slovacek told Hospodarske Noviny in an interview. He said the investment would come from its own sources and would be aimed at building the so-called Next Generation Network (NGN). Half of the money will go for the development of Cetin’s mobile infrastructure and the other half will be invested in fixed-line infrastructure.

Weekly Lists Below is a selection of stories from bne's lists. bne offers a variety of daily, weekly and monthly lists to subscribers, including: daily lists for Russia, Turkey, Ukraine, Central Europe, Southeast Europe and Eurasia; the weekly lists Banker, Deal, Credit, Investor, Stocks; and monthly lists Real Estate and Infrastructure. For more information, please visit the website at www.bne.eu.

Czech telecom infrastructure company Cetin eyes investing €812mn

bne:TMT

Russia's Internet deemed 'not free' in Freedom House rating

Bulgaria's Vivacom likely to change hands after defaulting on €150mn loan

Russia slipped from "partly free" in 2014 to "not free" in 2015 in the internet freedom rating published by the Freedom House monitoring organisation on October 28, with the country scoring 62 compared with 60 last year. The scale runs from 0, or complete freedom, to 100, or total government oppression.

The rating mainly deteriorated because of the law on blacklisted websites signed by President Vladimir Putin in late 2013, which allows the government to ban sites where content is deemed extremist, the Freedom House assessment said.

"Russia's environment for internet freedom declined significantly as the government took multiple steps to increase control over the online sphere, particularly in advance of the Sochi Olympic Games in February 2014 and throughout the ongoing crises in Crimea and eastern Ukraine," the report said.

VTB Capital, the investment banking unit of sanctions-hit Russian financial group VTB, has launched an immediate sale process for Bulgarian Telecommunications Company (BTC), which operates under the brand name Vivacom.

BTC, Bulgaria’s largest telecoms company by revenue, is likely to cut its ties with fugitive tycoon Tsvetan Vassilev, but will probably remain in the hands of a non-strategic investor 11 years after its privatisation.

State-owned VTB Capital is facility agent and security agent for a €150mn bridge financing loan extended in November 2013 by a syndicate of 10 banks, including VTB, to InterV Investment, a Luxembourg-registered holding company that indirectly owns BTC. The financing was secured via a share pledge over 100% of the shares of InterV.



Weekly Lists

Hungary government raises €242mn from sale of 5% stake in OTP Bank

Hungary’s government raised HUF75bn (€242mn) from the sale of a 5% stake in the country’s largest lender OTP Bank at an auction on October 29.

The stake was sold at an average price of HUF5,322 per share, a 6.1% discount to OTP’s closing price on October 28, Reuters reported, citing market sources. The range of accepted offers was HUF5,222 to HUF5,950.

Equilor said 13 bourse members, including OTP itself, applied to take part in the auction. The brokerage received bids for almost twice the offered amount, OTP said in a bourse statement.

Swiss company to take over Russia’s Ugra bank

Ukraine's Privatbank heads towards $150mn Eurobond restructuring

Russia's antimonopoly authorities have given approval for the Swiss Radamant Financial company to buy 52.5% of voting shares in the Russian bank Ugra, Interfax reported on October 26.

Radamant became a rare example of a foreign financial company buying into Russian assets amid the EU and US sanctions and economic slowdown affecting the country since 2014. Most western lenders, including Austria's Raiffeisen Bank International, Italy's Unicredit, Britain's HSBC and Barclays cut their presence in Russia in 2014 and 2015.

Privatbank, Ukraine's largest lender by assets, obtained approval from a London court to convene a scheme meeting on November 11 aimed at securing the restructuring of the bank's $150mn subordinated Eurobond.

This will include a hike in the coupon rate on the bond to 11% (from 5.8% currently) and a five-year maturity extension to February 2021.

The court agreed to merge the $70mn shareholder loan and its $150mn in Eurobonds for the purpose of voting to approve the scheme, with a 75% required approval rate, Kyiv-based Concorde Capital reported on October 27, quoting DebtWire news outlet.

bne:Banker



Weekly Lists

IMF reportedly mulls new policy to prevent derailment of Ukraine package

Western nations are considering accelerating planned changes to lending policies of the International Monetary Fund (IMF) in order to prevent the derailment of a bail-out package agreed with Ukraine in March 2015.

IMF policy prohibits the multinational lender from lending to countries that are in arrears to other governments, which means the IMF's own lending regulations potentially undermines its aid package to Ukraine as Russia, which holds a $3bn bond due in December, rejects attempts by Kyiv to negotiate a restructuring of the debt.

However, the US and other Western shareholders of the IMF are preparing to change the fund's lending policy so the IMF can move ahead with its Ukraine loan programme even if Kyiv authorities defaults on its loans to Russia, the Wall Street Journal reported on October 26, quoting people familiar with the matter.

Kazakhstan aims to become centre of Islamic finance in Central Asia

Bulgaria raises 2015 budget gap target to 3.3% of GDP

Islamic financing will be an important direction of development in the Astana International Financial Centre, according to Kairat Kelimbetov, governor of the National Bank of Kazakhstan. The NBK intends to “set the task that 10% of the assets of the banking system should be the industry of Islamic finance”, Kelimbetov was quoted as saying by Strategy2050, a governmental website. No other details were revealed.

Kazakhstan has been for years mulling the idea of becoming a Islamic finance hub in the region. In April 2015, the country adopted a new Islamic finance law, updating the old version from 2009. The country itself tapped into the Islamic bond market in 2012 and the government plans a new issue of Islamic bonds in 2016. Therefore, the plan voiced by Kelimbetov is likely to be realised as it would be just another step in the development of Islamic banking in Kazakhstan.

Less than a week after revising its 2014 budget deficit outcome to 5.8% of GDP from initially reported 2.8%, Bulgaria's finance ministry raised its 2015 budget gap target to 3.3% from 2.9% due to an expected spike in expenses by the end of the year. It still pledges to cut the shortfall in the coming three years, partly based on higher than previously expected GDP growth.

bne:Credit


Documents

bne:Newspaper - October 30, 2015