WolfTheissInsideCorporateHY2 2013 Final LR2

8/13/2019 WolfTheissInsideCorporateHY2 2013 Final LR2

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INSIDE CORPORATE WOLF THEISS Corporate Monitor HY/2 2013

3

CONTENT

Editorial 04

Foreword 05

New Civil Codes In Key CEE Jurisdictions 06

Country Overviews 09

Albania 10

Austria 12

Bosnia and Herzegovina 14

Bulgaria 16Croatia 18

Czech Republic 20

Hungary 22

Poland 24

Romania 26

Serbia 28

Slovakia 30

Slovenia 32

Ukraine 34

M&A Focus 37Central and Eastern European M&A Overview 38

Poland 42

Austria 42

Ukraine 43

Czech Republic, Hungary and Slovakia 44

Croatia and Slovenia 45

South Eastern Europe (Albania, Bosnia, Serbia) 45

Bulgaria and Romania 47

Outlook for 2014 47

About Wolf Theiss 48

Contacts 49

About Mergermarket 50


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EDITORI

L


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Dear Reader,

It is a great pleasure to presentthe second edition of ourCorporate Monitor, which we areproud to release in cooperationwith Mergermarket, a leadingintelligence and news service formergers and acquisitions acrossthe globe.

In 2013, M&A activity in Central and Eastern Europepicked up significantly from the levels of previous years,despite a still somewhat difficult economic and politicalenvironment in many parts of the region generally, andthe Eurozone in particular. This development, and thetypical deal drivers we have recently seen, give us some

reason to take a cautiously optimistic outlook in 2014 forM&A in this part of the world.

Regarding legal developments, the new Civil Codes inthe Czech Republic, Hungary and Romania stand outand we have therefore dedicated our main legal article(page 6) to this topic. As in the previous edition, we againshed some light on country specific macroeconomic(provided by CEEMEA1) as well as legal developments.

On behalf of the entire Corporate and M&A team at WolfTheiss, we hope you find this new edition useful and wishyou all the best and much success for 2014!

Sincerely

Dieter Spranzon behalf of WOLF THEISS Corporate Partners

1 CEEMEA Business Group currently works with senior leaders of over 340 large multinational companies operating in the Central

and Eastern Europe, Middle East and Africa regions, helping them understand economic and business outlooks on a global,

regional and country level. Regional and global executives also receive regular advice and updates on best practices

for expansion and success in emerging markets. Executive members of the CEEMEA Business Group can also attend regular

regional directors meetings held throughout Europe and in Dubai.

www.ceemeabusinessgroup.com | Contact: [email protected]


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6

The CEE region is currently undergoing a period ofchange as regards the principal rules of traditionalcivil law. Three of the major economies have recentlyenacted modern, new civil codes (NCC) whichreplace ones from the old socialist era (or even older).In Romania, the NCC has been in force since 2011. Inthe Czech Republic and Hungary, NCCs take effectthis year. There are both similarities and differences

between these NCCs. The similarities undoubtedly flowfrom the fact that each of these three new democraciesfaced dramatic evolutions of their societies as well asdynamic developments of the law. The differences, onthe other hand, reflect the particular national heritagesand distinct political influences.

Some of these key NCC similarities and dissimilarities arediscussed below with an emphasis on their impact onbusiness practice.

SIMILARITIES

Collective wisdom now codified

Each of the three NCCs implements a monistic regulatoryapproach. All private law institutions, concepts and rulespertaining to persons and businesses, properties and

obligations, as well as family and inheritance matters,are dealt with within a single code. For legal practitioners,this approach should mean that the scattered patchworkof enactments adopted during the past 20 years, whichquite often resulted in critically inconsistent regulationsand law enforcement, now vanish for good in exchangefor a coherent set of statutory rules promising uniformimplementation.

The NCCs also codify many judicial precedents andacademic recommendations for the best handling ofcomplex matters.

New contract law provisions

The Romanian and Hungarian NCCs provide less rigid

and formalistic rules concerning the assignment ofcontracts in response to the demand of businesses in particular, that of financiers.

The Romanian NCC, moreover, establishes for the first timeregulations for letters of comfort and letters of guarantee.

Liability for breach of contract becomes more objectiveunder the Czech and Hungarian NCCs, following alegislative trend of allowing contracting parties toescape from their agreements less easily. Accordingly,

the requirements for exculpation for the party inbreach have become more demanding, resemblingthe example of some Scandinavian laws and theexemption rules of the 1980 Vienna Convention, whichprovide that a party can avoid liability for a failure toperform its contractual obligations only if it proves thatthe failure was due to an impediment beyond its controland that it could not reasonably be expected to have

taken such an impediment into account at the time ofthe conclusion of the contract, or to have avoided orovercome its consequences.

The Czech and Romanian NCCs now reject the fullconsensus principle when considering whether adiscussion between private parties has resulted in anactual contract and provide for greater flexibility duringpre-contract negotiations.

The Czech NCC newly introduces liability for fault inconclusion of contracts (culpa in contrahendo), underwhich a party negotiating a contract has a clear dutyto negotiate with care and in good faith, and not to thedetriment of the other party. Importantly, the Czech NCCnewly allows for damages to be contractually limited,

which is a powerful tool in legal risk managementfor market participants. The Czech NCC modifies theexisting mirror image rule (which is also present inthe Romanian NCC) by providing that a reply to anoffer with an amendment or a deviation that does notsubstantially alter the terms and conditions constitutesan acceptance of the offer, unless the offeror withoutundue delay turns down such an acceptance.

The Romanian and Hungarian NCCs introduce localversions of fiduciary trusts which more resemble theFrench and German concept than the Anglo-Saxonversion. It is yet to be seen in both countries whetherthese legal forms will be supported by any preferentialtax treatment which could bring real value to these

institutions.

After being thoroughly debated in the courts duringthe post-Lehman years, a hardship concept was finallyintroduced in the Romanian NCC, mirroring the conceptset forth in the 2010 Unidroit Principles of InternationalCommercial Contracts. If an unforeseen event alters thebalance of obligations resulting in an unequal burdenon one of the parties to a contract, the courts may nowrule, if certain conditions are met, to either terminate thecontract or change it so as to restore its equilibrium.

NEW CIVIL CODES IN KEY

CEE JURISDICTIONS


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New companies law provisions

The regulations pertaining to companies in each of the

NCCs are now much more flexible, offering shareholdersthe ability to structure the corporate governance of theirlocal subsidiaries more freely with fewer restrictions.These improvements have been long awaited inHungary and the Czech Republic. The Romanian NCCdid not bring major changes in this area as the RomanianCompany Law had already been significantly reformedin December 2006, also with regard to the OECDprinciples of corporate governance.

What this means in practice, for example, is that:

(a) the types of preferential rights (and obligations)attached to share participations can be betteradopted to the particular preferences of private

investors;

(b) more liberal allocation of powers amongmanagement and shareholders can further facilitatethe functioning of complex shareholding structures;

(c) a predictable interaction between the articles ofassociation, which is a document for the public, andthe shareholders agreement, which is typically keptconfidential among the shareholders, can increasethe comfort level of joint venture shareholders;

(d) the process for establishing companies has beensimplified, inter alia with lowered share capitalrequirements for newly established companies.

This increased level of flexibility in corporate governancecomes, however, at the price of stricter liability rulesfor members of management and shareholders, notonly in their internal relations but in particular vis--visaggrieved creditors. The 2008 financial crisis and theearlier excesses of the 1990s induced all three legislatorsto further specify (and as a result widen) the instances inwhich creditors may pierce the corporate veil.

The liability of directors towards shareholders becomesmore objective under the Czech and Hungarian NCCsand also stricter in the sense that a reversed burden ofproof requires a director to exculpate him or herself fromany allegations. The Czech and Hungarian NCCs alsointroduce the accountability of shadow managers, that

is, persons influential to daily business, who will nowassume personal liability just as if they were registereddirectors of the company.

New finance law provisions

The NCCs probably bring about the most dramaticchanges in the field of finance law with potentiallyserious consequences for the less vigilant.While the Romanian NCC has introduced provisionsregulating call and put options, the Hungarian NCC

will forthwith stringently restrict their application toconventional commercial dealings and will explicitly

prohibit financiers from employing these legalinstruments as additional collateral (in other words,the prohibition of lex commissoria). Furthermore, inHungary the various types of collateral instruments havebeen unified into a single set of substantive provisionson mortgages available to financiers to seek collateralfrom their debtors. The prohibition on any contractualrestriction on assignability of claims vis--vis third partiesshould also be noted.

The Romanian NCC also puts finance transactionsinto a new perspective. Concepts which have so farbeen common to financiers, such as negative pledges,are now expressly prohibited under the NCC.

DIFFERENCESAlthough there is much in common among the threeNCCs, it is still interesting to see how the nationallegislators approached some matters differently.

In Hungary, the NCC will only become applicable tolegal relationships which materialised after its effectivedate. On a practical basis, this means that the oldHungarian Civil Code will remain relevant for a longtime together with its new counterpart.

The legal situation in the Czech Republic is similar, exceptfor lease arrangements where the Czech NCC will beapplicable even if the lease arrangements were enteredinto before the effective date of the Czech NCC (1 January2014). Although not directly addressed by the Czech

NCC, legal relationships which materialised before theeffective date of the NCC will not remain entirely outsidethe Czech NCC. The fundamental principles of the CzechNCC will become applicable to such legal relationshipsirrespective of the date of their origin.

As a general rule, the Romanian NCC applies to all legalrelationships concluded after 1 October 2011. However,the Romanian NCC also applies to future effects ofcertain legal relationships (for instance, marriage,filiation, adoption), which were materialised prior tosuch date and continue after 1 October 2011. The oldRomanian Civil Code continues to apply with regard tothe conclusion, interpretation, effects, performance andtermination of contracts concluded prior to 1 October

2011, but any amendment to such contracts mustobserve the rules set forth in the Romanian NCC.

CHALLENGES POSED

Apart from the new provisions briefly discussed above,each of the NCCs will bring significant challenges toprivate parties transacting business.

The Romanian NCC brought significant changes to thefundamentals of Romanian law, being consideratelymore complex than the prior Civil Code (based on the


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Napoleonic Code, it was adopted in 1864 and had notbeen amended since 1990). Such complexity raised the

bar for legal practitioners and the business communityin general as they need to constantly check whether aproposed course of action or contract is compliant withthe new rules, given that non-compliance, as a result,may have an effect which is not intended by the parties.In addition, the Romanian NCC confers more powers onthe courts in supplementing, modifying or terminatingcontracts and also an increased level of protection to thecontractual party having a weak bargaining position.For example, the right of a party to avoid a contract onthe grounds of gross disparity (leziune), which previouslyprotected only minors, is now generally recognised by theRomanian NCC to apply, under certain circumstances,to any contractual party. In addition, references inthe Romanian NCC to non-defined concepts, such as

reasonableness, may raise difficulties in the futurein terms of their interpretation by the courts.

BE CAREFUL WHAT YOU DO

Under the auspices of each of the NCCs, foreignerstransacting business locally will immediately benefit froma higher degree of legal structuring flexibility and frombeing able to more closely mimic solutions which arealready familiar from their home (or other) jurisdiction(s).By introducing familiar concepts, the NCCs are expectedto improve foreign investors percept ion of the local legalenvironment.

However, certainty and predictability with regard to theinterpretation of some of the NCCs new provisions willhave to wait until the first judiciary decisions have been

rendered by the national supreme courts.

In any case, the business community is advised toapproach their contractual relations with care and topay attention to the potential legal consequences of theNCCs. These are times and subjects for which there willbe a reward for keeping your lawyers close!


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UNTRYO

VERVIEW


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Macroeconomic overview

Key macroeconomic messages

Weak lending activity, low investment, and theslow pace of structural reforms will result in below-potential growth of 2.0% in 2014. Major downsiderisks are reflected in the poor investment environmentand deterioration of public finances.

Inflation will remain moderate, below the centralbanks target of 3.0%.

The lek (ALL) will remain a currency with a slightdeprecation risk, particularly due to the high currentaccount deficit. It should average 142.5 to the euroin 2014.

Key political messages

The left-wing coalition led by the Socialist Partydefeated the ruling Democratic Party in June 2013sparliamentary elections, by securing the absolutemajority. Current domestic policy is largely focusedon accelerating the countrys EU accession path.

EU candidate status for Albania was recommended inOctober 2013, but the pace of structural reforms is stilltoo slow and full EU membership remains years away.

Rising public debt, which has already exceeded 60%of GDP, and deteriorating public finances are likelyto lead to more austerity measures in the future. Taxhikes are possible.

ALBANIA

Development HY/2 2013 Outlook HY/1 2014

GDP -2.3% year-over-year (YoY)* Mid-year forecast is 2.0%GDP/capita Year-end forecast is $4,170

FDI Net FDI stood at 431m in the first halfof 2013 (slightly up from 393m in thesame period a year ago).***

We expect FDI to remain flat.

Inflation 1.9% YoY** Mid-year forecast is 2.1%Interest rate 3.0% Mid-year forecast is 3.0%Currency 140.7 to the euro*** Mid-year forecast is 141.5 to the euroCorporate sales Corporate sales deteriorated slightly

during the second half of 2013, withless than 50% of surveyed companiesrecording top-line growth (see CEEMEABusiness Group full survey).

Corporate sales are expected to alsoremain weak in the first half of 2014.

Household spending -1.0% YoY* Mid-year forecast is 1.0%Unemployment 12.8% Mid-year forecast is 12.5%

* Q3/2013 estimate; ** 12/2013, YoY; *** latest available data


Inward foreign direct investments

Inwardforeigndirectinvestm

ents(US$,million)

974 9961,051 1,036

957

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Recent legal developments

Following last years election which saw the left wingcoalition come to power, new tax legislation was passed

by parliament, much of which entered into force asof 1 January 2013, aimed at introducing progressivetaxation in Albania. Personal income tax will under thenew tax legislation be taxed progressively, with the firstALL 30,000 being exempt from tax, the band from ALL30,000-130,000 being taxed at 13%, and any amountabove ALL 130,000 being taxed at 23%.

More importantly, profit tax was increased from 10% to15%. The supply of medicines will be exempted from VAT.The VAT exemption on supplies in petroleum operationswill be limited only to operations in the exploration stageas opposed to the previously applicable exemptionwhich also extended to the development stage.

Effective from 1 April 2014, the excise tax will beincreased for a number of products including petrol,alcohol and tobacco.

The tax procedural law was also changed. The newlaw now allows businesses to appeal against a taxassessment by presenting a bank guarantee for thedisputed amount of tax and interest thereon (instead ofhaving to prepay such amount as required under theprevious law).


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6,858

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ents(US$,million)

AU

STRIA


GDP growth will accelerate to 1.5% in 2014 froman estimated 0.4% in 2013, largely driven by thecompetitive export sector, favorable credit conditions,low unemployment and a recovery in consumerconfidence.

Inflation will remain low at 1.6% in 2014. The euro ought to weaken mildly against the US

dollar as US interest rates are now expected to riseand the Fed will continue tapering its quantitativeeasing programme.


Following the September 2013 elections, the coalitionbetween the countrys two largest parties, the AustrianPeoples Party and the Social Democratic Party, hasbeen renewed.

The winning parties received much lower supportcompared to previous elections, while the right-wingopposition significantly strengthened. Observers willbe keenly watching the next elections.

Economic policy will remain focused on elementsof fiscal consolidation.


GDP 0.5% YoY* Mid-year forecast is 1.3%GDP/capita Year-end forecast is $49,300

FDI Net FDI stood at 2.4bn in the first halfof 2013 (up from -1.1bn in the sameperiod a year ago).***

FDI will remain flat or posta tiny increase.

Inflation 1.4% YoY** Mid-year forecast is 1.5%Interest rate 0.25% Mid-year forecast is 0.25%Currency 1.36 US$ to the euro*** 1.30 US$ to the euroCorporate sales Corporate sales across the sectors

improved slightly in the second halfof 2013, but some of the exporting firmswere affected by emerging marketsslowdown.

We expect a mild increasein corporate sales in 2014.

Household spending 0.3% YoY* Mid-year forecast is 0.7%Unemployment 4.9% Mid-year forecast is 5%

* Q3/2013 figure; ** 11/2013, YoY; *** latest available data



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Current changes in Austrian corporate law mostlyconcern joint-stock corporations and the type of shareswhich may or may not be issued in the future, as wellas a few changes to the rights that shareholders enjoyin relation to shareholder meetings.

Restrictions to the issuance of bearer shares: Austrianjoint-stock corporations must ensure that by 31December 2013, their articles of associations are incompliance with the new rule that, in general, theonly type of shares allowed to be issued must beregistered shares. Bearer shares are forthwith reservedto those stock corporations which are either listed or

whose shares are intended to be admitted shortly totrading on a stock exchange.

Bearer shares currently issued and not in line with theabove requirement will be automatically treated bylaw as registered shares from 1 January 2014 onwards;affected shareholders may demand the exchange oftheir respective share certificates from the company.

Bearer shares will be represented by one or moreglobal share certificates; listed stock corporationsneed to deposit such global certificates with a bankholding a license for the deposit of securities.

Title to bearer shares may only be proved by aconfirmation issued by the depositing bank havingits seat in a member state of the EEA or a full memberstate of the OECD (Deposit Confirmation).

In order to be admitted to shareholders meetings,shareholders holding bearer shares need to ensurethat the company receives the Deposit Confirmationat the latest by the third business day preceeding theday of the shareholders meeting.

In contrast thereto, admission to shareholders meetingsof non-listed joint-stock corporations (which henceforthcan generally only issue registered shares) depends on

who is registered as shareholder in the share ledger atthe beginning of the shareholders meeting.

Shareholders of non-listed joint-stock corporationsmay request that resolutions passed at shareholdersmeetings be sent within 15 days following theshareholders meeting via registered or electronicmail to the address notified to the company, exceptin those instances where the company has registeredits web page in the commercial register and posts theresolutions on such web page.


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BOSNIAANDHERZEGO

VINA



FDI Net FDI slightly improved in the first halfof 2013 and partial data suggests thatthis trend was maintained during therest of 2013.***

We expect only a slight improvementin FDI inflows in 2014.

Inflation -1.2% YoY** Mid-year forecast is 0.7%Interest rate - -Currency 1.96 to the euro fixed rate 1.96 to the euro fixed rateCorporate sales Weaker than expected. Almost 60%

of surveyed companies registeredno sales growth.

Some slight improvement is expected,but overall corporate sales will remainweak, with almost half of companiesforecasting no growth.

Household spending -0.5% YoY* Mid-year forecast is 0.1%Unemployment 28% (ILO measurement) Mid-year forecast is 28%

(ILO measurement)

* 2013 estimate; ** 11/2013, YoY; *** latest available data



GDP growth should modestly accelerate from anestimated 0.8% in 2013 to 1.4% in 2014, drivenby industrial production and exports. However,growth will remain below potential, largely due toa dysfunctional political system, weak domesticdemand, austerity measures, high unemploymentand stagnant wages.

Inflation will hover around 1% in 2014. Despite the fact that the pegged currency is

overvalued, the currency board is likely to bemaintained at the fixed rate. Letting the currency fallwould be devastating since over 70% of all loans in

the country are denominated in foreign currencies.


Political stability will remain shaky as the countrysthree ethnic groups continue to oppose working witheach other.

General elections, which are scheduled for October2014, will inevitably increase election-related(national) rhetoric, thus additionally slowing the paceof reform implementation.

This will dampen economic and business growthin the future.

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Changes in the Companies Law of the Federation of

Bosnia and Herzegovina (FBiH): The FBiH Governmentrecently approved a draft of the new FBiH Law onBusiness Companies. In general, the draft representsa restated and refined text of the current law andintroduces only few relevant changes to the existingcorporate legal framework. If this draft is adopted in itscurrently proposed version, one of the most significantchanges will be to enable foreign business companies toestablish a branch office in FBiH, which was not possibleuntil now. The draft is currently in the parliamentaryprocedure and its adoption is expected by mid-2014.


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BULG

ARIA


The economy is estimated to have grown by 0.6%in 2013. GDP growth will accelerate to 1.7% in2014, driven by exports and slightly better privateconsumption. However, the poor business climateand lack of monetary/fiscal stimulus will remain ahindering factor.

Inflationary pressures will remain moderate. Inflationwill hover around 1.5-2.0% in 2014.

The currency peg will remain in place at 1.96 tothe euro.



FDI Net FDI amounted to 960min the first 10 months of 2013.*** Net FDI might slightly increase in2014, but the pre-crisis level willnot be reached any time soon.

Inflation -0.2% YoY** Mid-year forecast is 1.3%Interest rate 0.02% Mid-year forecast is 0.02%Currency 1.96 to the euro Mid-year forecast is 1.96 to the euroCorporate sales Top-line growth was slightly weaker

than previously expected, but still mildlypositive for around 65% of surveyedcompanies.

Around 75% of companies expect salesgrowth, mostly in low single digits.


* Q3/2013 estimate; ** 12/2013, YoY; *** latest available data



The political situation has remained under strainover the last couple of months and public protestsdemanding the ruling coalition to step down havecontinued to sporadically occur.

There are persistent risks of another early election,and it is highly uncertain whether the ruling coalitionwill serve out its full term.

Moreover, the EU will continue to keep Bulgariaunder close watch, particularly due to corruptionaccusations and poor governance.



ents(US$,million)


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Implementation of the AIFMD: Bulgaria is currently on itsway towards implementing the Alternative InvestmentFund Managers Directive (AIFMD). The implementationof the AIFMD into Bulgarian law is envisaged to beeffected by way of amending the existing Act onCollective Investment Schemes and Other Undertakingsfor Collective Investments. As in some other jurisdictionsin the region, in Bulgaria the AIFMD will be transposedwith a delay, as the draft law was approved at firstreading by the Parliament on October 30, 2013. OnDecember 10, 2013, the bill was approved at thesecond reading. The new regime introduces significant

changes to the participants on the capital market. Manyunregulated investment or fundraising vehicles will beaffected by the new legislation. Their managers, or thevehicles themselves (if internally managed), will haveto be authorised or, if they benefit from the small-scalefunds exemption, will have to register with the FinancialSupervision Commission (FSC). Due to the very broaddefinition of an alternative investment fund, the scopeof application of the AIFMD in Bulgaria, as in otherjurisdictions, is not entirely clear and the practice of theFSC will be of major importance.

New interpretative decision of the Supreme Court

of Cassation:In November 2013, the Bulgarian SupremeCourt of Cassation adopted a long-awaited decision,concerning two independent issues for which the caselaw so far has been rather contradictory. The court ruledas follows: Transactions concluded by the representative body

(manager/managers) of a limited liability companywith respect to real estate property or other propertyrights, are valid even in the absence of the requiredpreliminary approval of the transactions by theGeneral Meeting. The lack of shareholder approval

only concerns the internal relations between themanager and the company (the possibility for thecompany to claim damages against the manager).

A commercial transaction concluded by one andthe same person in his/her capacity as a lawfulrepresentative of two different companies is valid.Previous case law ruled that such transactions werevoid due to breach of the prohibition under the generalcontracts law that one person may not represent bothparties to a contract without the explicit consent of therepresented parties. The Supreme Court of Cassation,however, held that the prohibition does not apply tothe representation of companies.


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3,339

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GDP -0.6% YoY* Mid-year forecast is 0.4%GDP/capita Year-end forecast is $13,610

FDI FDI stood at 429m in the first halfof 2013, representing an increaseof almost 9% compared to the sameperiod a year ago.***

We expect the mild increase to continue.

Inflation 0.4% YoY** Mid-year forecast is 1.2%Interest rate 7% Mid-year forecast is 7%Currency 7.62 to the euro*** Mid-year forecast is 7.64 to the euroCorporate sales Croatia has remained one of the weakest

CEE markets for corporate sales growth.Receivables collection has remained amajor issue. Almost 60% of companiesregistered small sales growth in 2013.

Around 65% of companies expect salesgrowth, but largely in low single digits.

Household spending 0.2% YoY* Mid-year forecast is 0.2%Unemployment 21.1% Mid-year forecast is 20.5%


CROATIA Macroeconomic overview


Fiscal tightening, weak consumption, falling industrialproduction, low lending activity, lack of fiscal/monetary stimulus and high unemployment will keepthis years GDP growth below the governments targetof 1.3%. We expect GDP to expand by a tiny 0.4% thisyear, making 2014 the first growth year since 2008.

After averaging 2.3% in 2013, inflation is expectedto decelerate to 2.0% in 2014, largely due to weakdomestic demand.

The central bank will preserve its managed float ofthe kuna, although in case of further global economicdeterioration it could potentially allow the kuna to fall

by up to 7.7 to 7.8 to the euro. In 2014, the kuna willdepreciate to an average of 7.65 to the euro from 7.57to the euro in 2013.


We do not expect any significant changes on thedomestic political scene despite the unpopularity ofausterity measures and lack of wider support for theruling coalition. The coalition government led by theSocial Democratic Party is likely to remain in poweruntil the next election scheduled for 2015.

Croatia joined the EU as a full member on 1 July 2013,but the euro introduction could be 4 to 8 years away(the central bank wants it quickly, the government ismore cautious).

We do not expect EU membership to boost growth inthe short-term.



ents(US$,million)


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The recently enacted Strategic Investments Actsimplifies and speeds up the process of obtainingthe documentation and approvals necessary forcommencing strategically important projects. Corecriteria for considering projects as strategically importantare the value of the project and the type of investment.For such strategic investment, the competence forissuing location, construction and usage permits istransferred from local government units to the Ministryof Construction, thus preventing local opposition fromeffectively blocking execution. The Act also enables thecentral government to exempt its real estate from the

special governance regime (e.g., forests and maritimedomain), for the purpose of realisation of strategicallyimportant projects, by concluding direct agreementswithout public tenders. The final decision, which grantsthe status of a strategically important investment, ismade by the Croatian Government.

Amendments to the Court Register Act simplifiedderegistration of entities with no assets (or assets ofnegligible value) and entities which have not publishedfinancial reports for three years in a row (inactiveentities). The registration of businesses is simplified bypermitting entry under general groupings of businessactivities. The requirement to submit details on personalidentification documents of foreign citizens and entities

when submitting registry applications has been liftedand a new group of registration officers, authorisedregistration clerks, have been authorised to deal withcertain cases of registration.


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6,451

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ents(US$,million)

CZECHREP

UBLIC


After a recessionary 2013 (-1.3%), GDP is expectedto expand by 1.8% in 2014, driven by exports,manufacturing, loose fiscal policy, and slightly betterconsumer spending.

Inflation is expected to average 1.5% in 2014.Inflationary pressures will remain modest.

The crown will be actively managed by the centralbank at around 27 to the euro, with the view ofboosting growth, preventing deflation and helpingexporters.



FDI Partial data suggest that FDI inflowswere much weaker in HY/2 2013compared to HY/1 2013. Net FDI stood at1.1bn in the first nine months of 2013.***

We expect a small increase in 2014.

Inflation 1.4% YoY** Mid-year forecast is 1.0%Interest rate 0.05% Mid-year forecast is 0.05%Currency 27.44 to the euro*** Mid-year forecast is 27.2 to the euroCorporate sales Corporate sales were much weaker than

companies had previously expected.Only 45% of companies registered salesgrowth.

Companies expect sales growth to pickup in the upcoming months, but growthwill largely remain in single digits.





Following early elections in October 2013, threeparties, the Czech Social Democratic Party, theAction of Dissatisfied Citizens, and the Christian andDemocratic Union, are likely to officially form acoalition government in the upcoming weeks.

Disagreements within the new coalition should not beexcluded.

The new government will not introduce new taxes in2014, but will do so in 2015. The new government willbe more pro-growth than the previous one and theausterity will be relaxed.


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Recodification of Czech Private Law: As alreadyaddressed in our keynote article (pages 6-8), on 1 January2014 the new Civil Code (NCC) came into force in theCzech Republic together with the new Act on BusinessCorporations (ABC) and the Act on Private InternationalLaw (NAPIL). These acts replace more than 250 separatepieces of legislation and recodify private law in theCzech Republic. These sweeping changes may affect theposition of business corporations, liability of their directorsand relations between business corporations forming aholding group.

The NCC significantly broadens the contractualfreedom of parties in the negotiation and interpretationof contracts. Basic concepts that have long played arole in contract formation and validity are altered. Thepreviously mandatory written form is abandoned, forexample, and replaced by several contractual types.The NCC significantly reduces subsequent challengesto the validity or the binding nature of a contract.Moreover, the NCC incorporates consumer protection inthe widest extent possible and introduces the protectionof the weaker party concept. Unlike the previous legalregime, it is now possible to terminate a previouslyconcluded contract if the circumstances under which itwas originally negotiated have changed substantially.

The NCC also introduces the new institute of pre-contractual liability (culpa in contrahendo). Frequently,the previous code created issues in international contextswith its restrictions on any waiver of rights that only arisein the future, restrictions on agreement on the limitationof damages, and limits to the possibility that the partiescould exclude these claims completely. The NCC liftsthese restrictions.

The ABCsignificantly increases a managers liability forthe management of the company. In case of breachingthe so-called principle of duty of care, not only canthe manager be held personally liable for the debts ofthe company, he or she can even be obliged to returnremuneration paid to them by the company over thecourse of the previous two years. Every corporate entityshould be aware that existing Czech companies whichare registered in the Commercial Register must checktheir articles of association or other founding documentto ensure that they meet the new requirements of theNCC and ABC. The revised articles must be filed with

the Commercial Register by 30 July 2014 at the latest.Importantly, the company can be dissolved by the courtfor a delay in compliance with this obligation.

Czech law returns to the principle stating that a buildingis an integral part of the land plot on which it is located.In the case of real property, where the structure and theplot of land are not owned by the same person, a legalpre-emptive right, which cannot be excluded or limitedby agreement of the parties, is introduced. Real estateas well as personal property, under some circumstances,can also be acquired from a person who does not ownit, as long as the buyer acted in good faith. In a relatedmatter, a new Cadastral Act has been adopted andcan be expected to cause delays in ownership title

registration proceedings.

Given the importance and scope of legal changesin 2014, careful legal review of all basic corporatedocuments and essential contracts is recommended.


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6,451

1,995 2,163

5,757

13,469

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

20122011201020092008

HUN

GARY



FDI Net FDI was negative in the first ninemonths of 2013 and stood at -1.1m.*** We expect weak FDI inflows.

Inflation 0.9% YoY** Mid-year forecast is 1.7%Interest rate 3.0% Mid-year forecast is 2.7%Currency 300.25 to the euro*** Mid-year forecast is 300 to the euroCorporate sales Weak. Slightly more than 55% of

surveyed companies registered salesgrowth.

Sales growth will improve in the firsthalf of 2014. Around 70% of companiesexpect to register top-line growth.





GDP growth will reach 1.8% in 2014, driven by pro-growth measures imposed by the government andthe central bank. Final domestic consumption andexports will register weak but positive figures.

Inflation will average 2.1% in 2014 (up from 1.7% in2013), thus remaining below the medium-term targetof 3.0%.

The base case average exchange rate for 2014 is 300forint to the euro. However, further monetary easingand an eventual rise in US interest rates might causesome forint depreciation.


The next parliamentary election is scheduled for May2014. The centre-right Fidesz, which continues to enjoystrong voters support on the back of populist policies,is expected to win the election and secure its secondterm in office, but perhaps without an outright majority.

During the pre-election period, the government willincreasingly focus on populist measures such ascuts in utility prices, thus putting more money intohouseholders pockets (at the expense of foreign utilityfirms, banks, and telecom firms).

The verbal conflict between the EU and Hungaryis likely to continue.



ents(US$,million)


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23



Amendments to the Hungarian Competition Act: Apartfrom far-reaching legislative changes in connectionwith the New Civil Code, which have been addressedin our keynote article (pages 6-8), it is noteworthy thatthe Hungarian Parliament recently adopted furtheramendments to the 1996 Hungarian Competition Act inNovember 2013.

Pursuant to the changes, the Hungarian Governmentnow has the power to render a decision on qualifyinga concentration as being of strategic importance fornational economy which will, in turn, exempt the

acquirer from the requirement to seek prior clearancefrom the Hungarian Competition Authority. Thejustification for the government to render such a decisionis public interest, particularly if the concentration aimsat preserving jobs or ensuring security of supply. Thispossibility apparently resembles similar exemptionregimes available in Germany or in France.

Another change concerns the introduction of a truesuspension regime in Hungarian merger controlproceedings, replacing the former no legal effectapproach. Accordingly, the Hungarian CompetitionAct now explicitly provides that a concentration, whichotherwise qualifies for Hungarian national mergernotification, cannot be implemented without first

having obtained prior clearance from the HungarianCompetition Authority. This closely resembles the regimeunder the EU Merger Control Regulation (ECMR), incontrast to the former solution which derived from theold Hungarian civil code and which allowed for aninterpretation that closing without prior clearance waslegally permissible at the parties own risk as long as themerger control clearance was granted subsequently,which rendered the transaction existent retroactively.

Furthermore, it will be now possible for the acquirerto launch a merger filing in Hungary on the basis ofits good faith intention to implement a concentration(similarly to the possibility under the ECMR), rather thanwithin a set deadline of 30 days from concluding themerger contract.

Finally, the amendments introduce a shorter reviewdeadline of 30 days (instead of the current 45 days)allowed to the Hungarian Competition Authority toassess a concentration which raises no competitionconcerns (a Phase I decision) whereas the procedural

deadline for a full-fledged review (a detailed Phase IIinvestigation) remains four months.

These amendments will become applicable toconcentrations notified after 1 July 2014.


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14,839

12,932

13,876

18,911

3,356

0

5,000

10,000

15,000

20,000

20122011201020092008



ents(US$,million)


GDP growth should accelerate to 2.8% in 2014 froman estimated 1.4% growth in 2013. It will be drivenby rising public and private investments, improvingexports and slightly better consumer spending.

Inflation will average 1.9% in 2014. Inflationary riskswill remain manageable.

We expect the zloty (PLN) to slightly appreciatethroughout 2014, largely due to stronger economicgrowth. However, a moderate currency risk ispresent due to the fact that foreign holdings of Polishgovernment securities are high and any cuts ininterest rates could see some portfolio capital leaving

the country and putting the zloty under some pressure.


GDP 1.9% YoY* Mid-year forecast is 2.6%GDP/capita Year-end forecast is $14.250

FDI Net FDI was negative in the first halfof 2013 and stood at -2.7bn, whilepartial data suggests that there wassome slight improvement in thesecond half of 2013.***

We expect a mild increase.

Inflation 0.6% YoY** Mid-year forecast is 1.8%Interest rate 2.5% Mid-year forecast is 2.5%Currency 4.2 to the euro*** Mid-year forecast is 4.1 to the euroCorporate sales 70% of surveyed companies recorded

sales growth, but mostly in single digits.Poland is a top priority CEE marketfor the majority of multinationals.Corporate expectations are optimisticso far. 80% of companies expectrevenue growth.





The political situation is expected to remain relativelystable despite the rising popularity of the oppositionand declining support for the ruling coalition. Weexpect the ruling coalition to remain in office until thenext elections scheduled for 2015, but it will struggleto win.

PO

LAND


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25



Proposed changes to the Code of Commercial

Companies: The proposed changes aim to increasethe attractiveness of Polish limited liability companiesfor investors and at the same time to improve theprotection of creditors. The proposal is to make sharecapital in a limited liability company optional, therebyalso abandoning the requirement of the minimal sharecapital (currently PLN 5,000). In theory, the share capitalprotects the creditors of companies, but in practice it isnot a very effective mechanism because the sharecapital does not have to correspond to the scale of thebusiness operations. Under the new regime, the creditors

of limited liability companies would be protectedby: (i) the mandatory reserve fund, created fromprofits, intended to cover any future losses (currentlysuch reserve fund is only mandatory for joint-stockcompanies); and (ii) the solvency test, which would beapplied by the companys management board prior toany disbursements to shareholders.

Special economic zones: On 23 July 2013, the PolishCouncil of Ministers adopted 14 decrees extending theoperational period of the 14 special economic zones(SEZs) established in Poland until 2026. This extensionshould encourage further investment into the SEZs.Investors with relevant permits operating businesses inthe SEZs are exempt from corporate income tax.

Proposed major reform of insolvency law:

The Bankruptcy and Restructuring Law may be replacedwith the Bankruptcy Law (a significantly modified versionof the Bankruptcy and Restructuring Law) as well as a

new Restructuring Law, which would introduce four newtypes of restructuring proceedings. The reform aims atincreasing the popularity of restructuring proceedings byreducing formal and administrative burdens (simplifiedprocedures, standardised forms, central online registerof proceedings) which should increase the number ofdebtors who manage to avoid liquidation bankruptcyproceedings and continue to operate their businesses.


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26


13,909

4,844

2,9402,523

2,242

0

3,000

6,000

9,000

12,000

15,000

20122011201020092008

ROM

ANIA



FDI Net FDI stood at 1.8bn in the first 10months of 2013 (slightly lower thanthe same period a year ago).***

We expect a mild increase.

Inflation 1.8% YoY** Mid-year forecast is 1.3%Interest rate 3.75% Mid-year forecast is 3.5%Currency 4.53 to the euro*** Mid-year forecast is 4.45 to the euroCorporate sales Weaker than previously expected.

Revenue growth was registered by 60%of surveyed companies. Receivablescollection has remained a problem.

Around 80% of companies expect top-line growth, but largely in single digits.





In a base case scenario, GDP should reach 2.1% in2014, largely driven by exports, industrial production,domestic demand, lower inflation, and monetaryeasing. However, risks are skewed to the downside.

Inflation will hover within the central banks targetband of 1.5 to 3.5% in 2014. Inflationary pressure willremain modest.

The leu (RON) will remain broadly stable in the mid-term. It will average at 4.45 to the euro in 2014, butany tapering of US quantitative easing could seesome selling of leu assets.


The government led by Victor Ponta has a largemajority and will remain in power. We do not expectany significant changes on the political scene,although some internal disagreements within thegovernment are possible and could impact theeconomic policy making.

Presidential elections that will take place in Romaniain the second half of 2014 are expected to stir up thepolitical environment.



ents(US$,million)


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27



Apart from far-reaching legislative changes in connectionwith the New Civil Code, which have been addressed inour keynote article (pages 6-8), the following recent legalhappenings and developments are noteworthy:

Insolvency: On the third business day after its entryinto force, the Emergency Government OrdinanceNo. 91/20132 approving the Insolvency Code (EGO91) was declared unconstitutional by the RomanianConstitutional Court.3Three days later, the effects of theEGO 91 were suspended as a result of the publication inthe Official Gazette of 1 November 2013 of the decision of

the Romanian Constitutional Court. This was by far theshortest life of any Romanian enactment.

The Romanian Ombudsman (Avocatul Poporului) filed apetition with the Constitutional Court a few days after thepublication of EGO 91 in the Official Gazette and challengedcertain provisions thereof as being unconstitutional. TheOmbudsman considered that such provisions breached theprinciple of legal certainty with regard to the non-retroactiveeffect of legal provisions, as well as their accessibility andpredictability. The Constitutional Court, ruling by majority,declared EGO 91 unconstitutional.

One of the aspects criticised by the Constitutional Courtrefers to the fact that the government failed to provide

sufficient rationale for passing such enactment by way ofan Emergency Government Ordinance. The InsolvencyCode was initially prepared as a draft law and was madeavailable for public consultation on the website of theRomanian Ministry of Justice on 2 September 2013. Thedraft law prompted vigorous debate during the 30 day

2 Government Emergency Ordinance No. 91/2013 was published in the Official Gazette of Romania No. 620 of 4 October 2013and entered into force on 25 October 2013.

3 Decision No. 447/2013 of 29 October 2013, published in the Official Gazette of Romania No. 674 of 1 November 2013.4 Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No. 1346/2000

on insolvency proceedings.

public consultation period, which lapsed on 2 October2013. On the same date, the government approved theInsolvency Code by way of EGO 91, a decision whichgreatly surprised the legal and business communities.

It is interesting to note that EGO 91 introduced concepts, whichare currently being analysed at an EU level4, regulating theinsolvency of members of a group of companies.

The effects of EGO 91 were suspended as of 1 November2013, upon the publication of the Constitutional Courtsdecision in the Official Gazette. EGO 91 will cease to

produce effects following the lapse of a 45 day periodafter such publication, unless the unconstitutionalprovisions thereof are remedied during such period.The Constitutional Court specified in its decision that thesuspension does not leave a legislative gap, but rathertriggers the reinstatement of all prior enactments whichwere abrogated by EGO 91.

The government took on board the comments raisedby the Constitutional Court and sent to the RomanianParliament, at the beginning of December 2013, a draftlaw regarding pre-insolvency and insolvency procedures.One of the changes made in the draft law (as opposed toEGO 91) refers to the fact that the new law will apply onlyto procedures commenced after its entry into force (EGO

91 was foreseen to also apply to on-going procedures).

Only the future will tell what will eventually happen with theInsolvency Code. For the time being, it continues to stir theinterest of the Romanian legal and business communities.


28/52

3,492

2,364

1,813

3,258

650

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

20122011201020092008

28



This years growth will be slightly weaker thanpreviously expected, particularly due to austeritymeasures which will include tax hikes, a higherretirement age for women, and cuts in subsidies andpublic administration costs. Growth should reach 1.0%in 2014, driven by exports and industrial production.

Inflationary pressures will remain moderatethroughout 2014. Inflation should average around3.0% due to weak domestic demand (tax hikes andsubsidy cuts are a risk).

The dinar (RSD) is still a weak currency (and slightlyovervalued due to the high current account deficit).

Therefore, some volatility is still possible in the future.



FDI Net FDI amounted to 606m inthe first 10 months of 2013.*** We expect an increase.

Inflation 1.6% YoY** Mid-year forecast is 2.5%Interest rate 9.5% Mid-year forecast is 9.5%Currency 115,1 to the euro*** Mid-year forecast is 114 to the euroCorporate sales Some 55% of companies registered sales

growth. Consumers downtrading tocheaper products is among thestrongest in CEE.

Corporate expectations are moderatelyoptimistic. Around 70% of companiesexpect top-line growth, although toughausterity could disrupt these plans.

Household spending -2.1% YoY* Mid-year forecast is -1.0%Unemployment 20.1% Mid-year forecast is 21.0%



S

ERBIA


Serbia will start EU accession talks on 21 January2014. The EU has praised Serbias efforts on theimplementation of the Kosovo deal and the pace ofdemocratic reforms. However, full EU membershipremains years away.

The coalition is strained and early elections couldbe called if and when the largest party (SerbianProgressive Party) decides the timing is right (theyhave been experiencing growing popularity).

The government is keen on negotiating a new IMFstandby agreement and we expect the governmentto increasingly focus on tough fiscal consolidation

and economic reforms.



ents(US$,million)


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29



Competition Protection Law: On 31 October 2013,

the Parliament of the Republic of Serbia adoptedamendments to the Competition Protection Law. Theamendments to the law introduced different rules for theassessment of the so-called market dominance of anundertaking. The market dominance of an undertakingis no longer presumed solely on the basis of suchundertakings estimated market share (in other words,a market share above 40%). The Competition ProtectionCommission is rather obligated to establish the fact ofdominance on the basis of numerous factors, whichinclude, inter alia, the market share of the undertaking,the overall structure of the relevant market, its verticalintegration, barriers to enter the market and the overallcompetitive situation on the market. Moreover, theamendments redefined so-called collective dominance

to mean two or more legally independent undertakingsthat are economically linked to jointly act or operateas one undertaking. Amongst other amendments, thelaw clarified the manner of calculation of monetarysanctions for anticompetitive behaviours, meaning asanction cannot exceed 10% of the total annual turnoverof the responsible undertaking in the preceding financialyear generated on the territory of the Republic of Serbia.

Law on Factoring:On 16 July 2013, the Parliament of theRepublic of Serbia adopted the Law on Factoring, whichprovides a comprehensive and systematic regulativeframework for the factoring business for the first timein Serbia. The law recognises several types of factoringservices: domestic and international factoring services;recourse and non-recourse factoring services and

reverse factoring services (obrnuti faktoring). In order toregister for factoring services, a Serbian legal entity mustbe established in the form of a limited liability companyor a joint stock company with a registered capital of atleast RSD 40,000,000 (approximately 350,000), andmust obtain a license issued by the Serbian Ministryof Finance. Aside from domestic entities registered forfactoring services, depending on the type of factoringtransaction, Serbian banks, international banks andinternational companies may also act as factors underfactoring agreements.


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30


4,868

1,770

-6

2,143

2,826

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

20122011201020092008

SLOVAKIA



FDI Net FDI stood at 334m inthe first 10 months of 2013.*** We expect weak FDI inflowsin the first half of 2014.Inflation 0.5% YoY** Mid-year forecast is 1.0%Interest rate 0.25% Mid-year forecast is 0.25%Currency 1.36 US$ to the euro*** 1.30 US$ to the euroCorporate sales Around 70% of surveyed companies

recorded sales growth. This is slightlybetter than previously expected.

Similar to HY/2 2013. Some 70%of companies expect sales growth,but largely in single digits.





Growth will accelerate to 2.0% in 2014 from anestimated 0.8% in 2013. Export demand is expected tostrengthen in the upcoming months, while domesticdemand is likely to recover gradually as a result ofeasing fiscal policy (lower tax for low-income workers,lower corporate tax, and slightly higher publicinvestment).

Inflationary pressures will remain low, particularlydue to expected reduction of electricity prices.Inflation will average 1.3% in 2014.

The euro ought to weaken mildly against the USdollar as US interest rates are now expected to rise at

least in the medium term.



ents(US$,million)


The country has been governed by the centre-leftparty (Smer-SD) since 2012. We do not expect anychanges on the political scene in the next couple ofyears. The next general election is scheduled for 2016.

Prime Minister Fico will run for president at the nextpresidential elections but Smer will continue to run thegovernment until the next parliamentary elections.

The government will focus on keeping the budgetdeficit below 3% of GDP, most possibly by improvingtax collection and selected sales of state assets.


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Amendment to the Act on Collective Bargaining: TheParliament approved a bill (the Amendment) bywhich Act No. 2/1991 Coll. on Collective Bargaining(the Collective Bargaining Law) was further changedeffective 1 January 2014. The Amendment regulatesextending the category Collective Agreements of HigherDegree (each an Agreement) to other employers in thesector. Selected changes include: The current wording of the Collective Bargaining

Law stipulates that an Agreement must contain aclassification of the sector for which it is concluded.According to the Amendment, classification of the sector

in an Agreement must be on a level of a division noton a level of a group. However, the Amendment alsoallows concluding an Agreement for a part of the sector,provided that the parties agree to this. Classification ofthe part of the sector contained in the Agreement will beconsidered a classification at a group level.

Pursuant to the Amendment, the Ministry of Labour,Social Affairs and Family may extend the applicability ofan Agreement to other employers in the sector or in thepart of the sector, as applicable, for which the Agreementwas concluded, either on the basis of the joint proposalof parties or on the basis of a proposal of just one party.The applicability of an Agreement concluded for a sectormay be extended to other employers in part of that sector.

New Set of Arbitration Laws: The Ministry of Justiceproposed a bill on Consumer Arbitration Proceedingscreating a specific type of alternative dispute resolutionsimilar to arbitration proceedings but which maintainsthe protection of the rights of consumers as a weakerparty. According to the Ministry, the necessity of separateconsumer arbitration proceedings has arisen due torecent negative experiences with arbitration/court rulingsagainst consumers and for EU harmonization purposes.

The Ministry of Justice also proposed amendments to thecurrent Act on Arbitration. That proposed bill excludes

the possibility of arbitral tribunals/courts decidingconsumer disputes, requires that permanent arbitrationcourts may be founded only by professional or commercechambers, and stipulates that preliminary injunctionsissued in arbitration proceedings will be considered asdirectly enforceable provided that the other party hadthe opportunity to familiarise itself with the injunction. Itis very likely that these arbitration bills will be adoptedand become law in the course of 2014.

New amendments in the field of tax regulation: The Ministryof Finance introduced tax license rates and announced a

lowered corporate income tax rate of 22% (previously 23%).Both changes are effective 1 January 2014. The tax licenserate will depend on company revenues and whether thetax subject is a VAT payer, as follows: Non-VAT payer with revenues up to 500,000

tax license 480 VAT payer with revenues up to 500,000 tax license

960 Tax subjects with revenues above 500,000

tax license 288

Newly established companies will be tax-exemptfrom tax licenses in their first year. The Parliament alsoadopted the Amendment on VAT. The most significantpart of that Amendment is that from 1 January 2014

there is a new obligation for VAT payers to present to theTax Office all underlying data related to the domesticsupply of goods and services in electronic form (a VATledger statement kontroln vkaz). This statementshould be filed for each VAT period, together with theVAT return, by the 25th day following the end of eachtax period. The VAT ledger statement will be mandatorilysubmitted in electronic form in an XML format issued bythe Ministry of Finance. Sanctions are provided for thefailure to submit a VAT ledger statement. Moreover, if aVAT payer does not submit a VAT ledger statement, VATdeduction will not be paid.


32/52

32


-653

1,947

359

999

145

-1,000

-500

0

500

1,000

1,500

2,000

20122011201020092008

SLOVENIA


The economy is expected to remain in recessiondue to weak demand by consumers, companiesand government. GDP will shrink by 1.0% in 2014.Business will suffer, while economic recovery will beslow and long. Positive economic movements will notbe registered until 2015.

Weak domestic demand will keep inflationarypressures weak throughout this year. Inflation willaverage around 1.5% in 2014.

The euro ought to weaken mildly against the USdollar as US interest rates are now expected to rise atleast in the medium term.


GDP -0.6% YoY* Mid-year forecast is -1.0%GDP/capita Year-end forecast is $21,330

FDI Net FDI stood at -420m in the first 10months of 2013 (down from a net FDIexpansion of 283m in the same perioda year ago).***

FDI will also remain weakin the first half of 2014.

Inflation 0.7% YoY** Mid-year forecast is 1.0%Interest rate 0.25% Mid-year forecast is 0.25%Currency 1.36 US$ to the euro*** 1.30 US$ to the euroCorporate sales Consumers downtrading to cheaper

products is the strongest in CEE. Sloveniawas among the worst CEE markets forsales growth.

Corporate expectations are weak,with half of the surveyed companiesexpecting no growth in 2014.

Household spending -3.0% YoY* Mid-year forecast is -2.5%Unemployment 13% Mid-year forecast is 13.5%




The new centre-left (four-party) coalition governmentwon a confidence vote in November 2013. However,there are persistent internal tensions since some of thecoalition partners demand a revision of the coalitionagreement and insist on a cabinet reshuffle. Somechanges in the government are possible.

Economic policy will focus on stabilising statefinances and cleaning up the banking sector whichhas a capital shortfall of at least 5 billion accordingto recently announced stress-test results. Therefore,state assets will be privatised, while tax hikes andspending cuts are highly certain. This will come at

the expense of growth.



ents(US$,million)


33/52

33



Amendments to the Insolvency Act:In December 2013,important changes to the Insolvency Law were enactedwhich aim to enable more extensive restructuringpossibilities and strengthen the rights of creditors. Thecompulsory settlement requirements of a minimumquota of 50% payable to creditors within the maximumperiod of four years have been entirely suspended.An important new concept is the pre-insolvencyrestructuring proceedings which can be initiated whenthe state of insolvency is threatening to occur within oneyear but has not yet occurred.

Notarial Mortgage: The amendments of the FinancialCollateral Act introduced the so-called notarialmortgage, the benefit of which is that it can be enforcedout-of-court. The mortgagee is entitled to either (i) arrangefor the sale of the real property with a Slovenian notaryand satisfy its claims from the received proceeds; or (ii)take over the real property (or the ownership rights), ifthe notarial sale process has not been successful.

Real Property Tax: The National Assembly hasadopted the Real Property Tax Act according towhich all registered real property owners are subjectto new taxation. The tax base is the administrativelydetermined market value of the real property. The taxrates can range from 0.15% up to 0.75%, depending on

the designated use of the real property. The Act becameeffective 1 January 2014.


34/52

34


10,913

4,816

6,495

7,207

7,833

0

2,000

4,000

6,000

8,000

10,000

12,000

20122011201020092008

UKRAINE



FDI Net FDI stood at 2bn in the first 11months of 2013, thus indicating a strongdecline compared to the same period ayear ago.***

FDI inflows will remain flat.

Inflation 0.5% YoY** Mid-year forecast is 6.0%Interest rate 6.5 % Mid-year forecast is 7.0%Currency 10.9 to the euro*** Mid-year forecast is 11.5 to the euroCorporate sales 70% of surveyed companies recorded

sales growth, while the others either stag-nated or declined. Receivables collectionwas the most difficult in the CEE region.

80% of multinationals expect salesgrowth in 2014, mostly in single digits.





We expect only a modest economic recovery in 2014,with GDP growth exceeding 1.0%. Growth will largelybe stimulated by foreign demand. Total domesticdemand is expected to remain weak. Downside risksare political instability and high twin deficits.

Inflationary pressures are likely to increase throughout2014, largely due to subsidy cuts and expectedweakening of the domestic currency. Averageinflation might exceed 6.0% this year.

The currency will depreciate to an average of 11.9 tothe euro this year from an average of 10.6 to the euro in2013. High currency risk will be maintained due to wide

external deficit, weak capital inflows, and low foreignreserves. The inflow of a Russian aid package is likely torestore finance requirements, at least in the short-term.


The government decided not to sign the FTA with theEU in November 2013, but instead to strengthen itseconomic ties with Russia. Such a decision has led tomassive anti-government protests which have beenstrongly supported by opposing parties.

Protests have moderated since the government signeda deal with Russia in December 2013, but instability risksare still present. The deal aims to cut gas prices, whileRussia intends to additionally support Ukraine with apurchase of government bonds worth US$15 billion.

The presidential election scheduled for 2015 will, mostlikely, not depose Viktor Yanukovych from power, but

political instability will remain acute and should bemonitored closely.



ents(US$,million)


35/52

35



Exchange Control Regulations: In November 2013,the National Bank of Ukraine extended the temporarylimitations on use of foreign currency proceeds until 17May 2014. Based on these limitations: at least 50% of a Ukrainian residents foreign currency

proceeds need to be immediately converted into UAH(with some limited exceptions);

when advance payments are made for the importof foreign goods or services, such goods must bedelivered or services provided within 90 days ofpayment of the advance.

New Rules Regarding Organic Products and RawMaterials: On 10 January 2014, the new Law ofUkraine On the Production and Circulation of OrganicAgricultural Products and Raw Materials becameeffective. This law substantially expands the regulatoryframework and requirements for the production,storage, transportation, labelling and sale of, organicproducts and raw materials. The producers of organicproducts will be subject to special certification andregistration. Organic products will have to be grown onland recognised or designated by authorised bodies assuitable for this purpose.

Insurance Market Developments: Due to the changesintroduced to the Law of Ukraine On Insurance, star ting

from 17 May 2013, foreign insurers received full accessto the Ukrainian insurance market. In particular, foreigninsurance companies are entitled to render insuranceservices in Ukraine through their Ukrainian branchesprovided that they meet certain requirements stipulatedby law and that the branches obtain insurance licenses.

The adoption of such amendments to the Law of UkraineOn Insurance as well as a number of regulationsimplementing these amendments resulted fromUkraines accession to the WTO.

Improvement of access to Information on Legal

Entities and Private Entrepreneurs: Starting from 19October 2013, Internet users received online accessto most registration data on legal entities and privateentrepreneurs contained in the Unified State Registerof Legal Entities and Private Entrepreneurs, including:information on founders and/or shareholders of legalentities and their contributions to the charter capital; theamount of the charter capital and the date of its payment;information on principal activities of legal entities andtheir branches; information on the registration and de-registration of legal entities by the Ukrainian regulatory

authorities; and contact information.

These changes should result in an improvement ofthe transparency of legal entities activities and in thedevelopment of the Ukrainian business environment ingeneral.

Compliance: Starting from 1 December 2013, aprocedure for compliance of drug importation withlicensing terms, as well as amendments to theprocedure of drug importation licensing, became valid.In particular, applicants for a drug importation licenseare now obliged to submit their dossier to the licensingauthority. Additionally, drug importation licensingterms now contain a number of additional requirements

which came into effect on 1 December 2013. However,the validity of the existing drug importation licenses isnot affected by the mentioned regulatory changes.

The Ukrainian technical regulations on energy labellingof household washing machines and refrigeratingappliances have been amended in order to comply withthe current EU Energy Labelling Directive. Accordingto new regulations, the suppliers of such equipment tothe Ukrainian market must use new labels (introducedby technical regulations). The transitional period for


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36


UKRAINE

replacing the old labels with the new ones expires on30 June 2014. From 1 July 2014, the state authoritieswill monitor the suppliers compliance with technicalregulations on energy labelling and impose sanctions

for violations.

Energy: The recently adopted Law of Ukraine OnPrinciples of Energy Market in Ukraine introduceda legal framework for the transition of the Ukrainiannational energy market model from a sole purchaserto the bilateral, day-ahead and balancing energymarket models. The law regulates the operation ofthe new market models (starting from 1 July 2017) aswell as the rights and obligations of participants of theenergy market. Importantly, once in effect the law willintroduce changes to the procedure for payment of thefeed-in tariff to companies generating electricity fromrenewable energy sources.

Depository System Developments: The new DepositorySystem Law became effective on 12 October 2013.It introduced fundamental changes to the principlesand rules of operation of participants of the Ukrainiandepository system. For instance, it provides for theestablishment of the Central Securities Depository (thefunctions of which are performed by the NationalDepository of Ukraine) as the main depository for non-state securities. The new law also clarifies the deliveryagainst payment mechanism which would be ensuredby the creation of the Settlement Center responsiblefor financial settlements under securities transactions.In order to implement the new system rules, the Lawprovides the following principle requirements: by 12 April 2014, all global certificates of securities

issues shall be transferred to the Central Securities

Depository. If not, dematerialised securities will beblocked on the accounts of depositories/custodiansuntil the said obligation is fulfilled;

by 12 October 2014, owners of dematerialised securitiesshall enter into agreements for servicing securitiesaccount with the depository institution selected by theissuer of respective securities. Otherwise, the securitieswill be excluded while determining the quorum andvoting of the issuer.

Introduction of Criminal Liability for Legal Entities:Thelaw introducing criminal liability for legal entities forcrimes related to money laundering, acts of terrorism,use of proceeds from trafficking drugs, bribery andimproper influence on state officials committed by

authorised representatives of legal entities on their behalfor in their interest will enter into force on 1 September2014. The following types of criminal liability may beimposed on legal entities: (i) penalty from UAH 85,000to UAH 1,275,000 (approximately from US$10,634 toUS$159,515); (ii) liquidation; and (iii) confiscation of theirproperty.


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M&AF

CUS


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3838

CENTRAL AND EASTERN

EUROPEAN M&A OVERVIEW 2013

M&A activity in Central and Eastern Europe (CEE)5 hasbeen resilient through 2013 despite ongoing politicalupheaval and lingering economic uncertainty in nearbyeurozone countries. Over the course of 2013, the CEEregion collectively produced 474 deals worth 27.9bn,marking a 10% year-on-year (YoY) increase in volumeand a 57% increase in value from the 431 deals worth17.8bn announced in 2012.

This past year, we saw a sizeable portion of large-scale M&A driven by foreign buyers. In some sectors,this meant deleveraging to concentrate on their homemarkets, particularly in the energy sector. In one of theyears largest M&A deals, German energy group RWEsold its interest in Net4Gas, a major gas transmissionnetwork in the Czech Republic, to a consortium of foreigninvestors including Allianz Capital Partners of Germanyand Borealis Infrastructure Management of Canada for1.6bn. The Net4Gas stake sale was driven largely bythe sellers debt-reduction efforts, and it allowed two newinternational parties Allianz and Borealis, both seasonedinfrastructure investors to add Net4Gass lucrative3,600km+ transmission network to their portfolios.

But, in others sectors, international investors jumped atopportunities in the CEE. This was particularly the casein the telecommunications, media and technology(TMT) and financial services spaces. Netherlands-basedPPF Group made two of the years priciest acquisitions,paying 2.5bn for a 65.9% stake in Telefonica O2 CzechRepublic and 1.3bn for a 25% stake in Czech financialservices company Generali PPF Holding.

This is not to say that the health of the CEE M&A marketdepends solely on international buyers. The largest dealof 2013 saw a consortium of Cyprus-based investors,including Karswell, Sensor Overseas and ArgumenolInvestment Company, sell their majority stake in Polishtelecom group Polkomtel to domestic, strategic buyerCyfrowy Polsat for 3.6bn. As a review of the years topdeals will reveal, however, foreign rather than domesticbuyers have been the primary force behind the CEEsmost sizeable M&A deals.

Reviewing the years largest deals also makes clearthat strategic rather than private equity buyers havebeen behind most large-scale M&A. In 2013, the CEE

Central and Eastern European M&A, 2008-2013

Numberofdeals

Volume Value

0

20

40

60

80

100

120

140

160

180

Q4

13

Q3

13

Q2

13

Q1

13

Q4

12

Q3

12

Q2

12

Q1

12

Q4

11

Q3

11

Q2

11

Q1

11

Q4

10

Q3

10

Q2

10

Q1

10

Q4

09

Q3

09

Q2

09

Q1

09

Q4

08

Q3

08

Q2

08

Q1

08

0

2,000

4,000

6,000

8,000

10,000

12,000

5 The CEE is defined here by seven distinct countries or regions including Poland; Austria; Ukraine; Czech Republic, Hungaryand Slovakia; Croatia and Slovenia; South Eastern European (SEE) countries Albania, Bosnia, and Serbia; and Bulgaria and Romania

ValueofdealsEURm


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2013 Year-to-date (YTD) Top Deals Table

region saw 70 private equity-backed transactionsworth 4.4bn, flat in volume and 28% down in value.These figures are not entirely discouraging, however:private equity exits increased from 24 in 2012 to 29 in2013, and the exit activity that did take place (howevermodest) sends a positive message to other privateequity firms contemplating moving into the CEE M&Amarket going forward.

US-based private equity firm KKRs acquisition of UnitedGroup is a case in point. The deal is significant not only

because it marks KKRs first direct investment into aSouth Eastern European company or country, but alsobecause it demonstrates how exits on behalf of smaller,CEE-focused private equity firms are contributing tothe broader M&A market. The sale of SBB/Telemach toKKR marked an exit on behalf of the European Bankfor Reconstruction and Development and Mid EuropaPartners LLP, a UK-based private equity firm thatspecialises in CEE investments, indicating that some ofthe most attractive CEE targets can be sourced from theportfolios of smaller private equity firms.

TargetCompany

Target Sector TargetCountry

BidderCompany

BidderCountry

Seller Company SellerCountry

DealValue

EUR(m)

Polkomtel Sp.z o.o. (83.77%stake)

Telecommunications:Carriers

Poland Cyfrowy PolsatSA

Poland Karswell Limited;Sensor OverseasLimited;ArgumenolInvestmentCompanyLimited

Cyprus 3,649

S

Documents

WolfTheissInsideCorporateHY2 2013 Final LR2