Easy Come, Easy Go

As the world economy is going down the shitter, Slovenian financial sector is along for the ride. Companies which as much as six months ago rocked the place and were seen as major players in everything from food industry to media are falling apart faster than you can say “Bohemian Rhapsody“. Naturally, we’re talking about Igor Bavčar and his Istrabenz and (at the moment to a lesser extent) Boško Šrot and his Laško brewery. Both Istrabenz and Laško have been targets of MBO’s, executed by Bavčar and Šrot respectively. With a little help from their former friend and his government they managed to get a carte blanche for buying out companies they ran. But as they lost favour with former PM Janez Janša they were styled as tycoon, with Boško Šrot being the main target of Janša’s revenge, for snatching Delo newspaper – a trophy much coveted by Janša – from under his nose. Igor Bavčar, on the other hand escaped rather unharmed as he and Janša were old war-buddies.

Igor Bavčar. Not Happy. (source)

But in the end it was Istrabenz which crumbled first, declaring insolvency in the middle of last week. The company has most of its assets invested in financial markets and suffered terribly from markets going south. Which would have been bad enough had things been orderly. But Igor Bavčar ran up an enormous debt, money which he used to expand and invest (unwisely, as it turned out) but also to finance his MBO – and in doing so he ran up a debt of about € 900 million (yes, nine hundred million euros), amounting to about 85% of the value of the company. Which is fucking bad and a clear case of casino economy.

Bavčar got in the game far too late stayed in for far too long. In the end his fortunes turned against him and his assets all but evaportated. At which point the banks got involved and wanted their money back. But there was a catch. For € 900 million of borrowed money Bavčar put up only € 200 million worth of assets, meaning that the banks gave the remaining 700 million just like that, hoping – just like Bavčar did – that capital returns will be big enough and will last long enough that extending a credit line exceeding the first US bailout package will not seem like a spectacular stupidity.

Well, it does.

As Istrabenz’s stock went into a freefall, crashing at a mere eight percent of its peak value, bankers finally got off their asses and started making nervous noises about their money. The fact that the company’s largest creditor, the Nova Ljubljanska banka (NLB) is partly owned by the state only complicates matters further. And then there are Istrabenz stockholders, who own a whole lot of worthless stock and must include it in their balance sheets. Among other things this has contributed heavily to Petrol, a partly-state owned oil-and-energy company to post a loss for the first time in the history of independent Slovenia.

Some are tempted to say that Istrabenz is too big to fail. Indeed, if it goes down the banks will lose the better part of those 700 million and it is quite possible that the government would have to use taxpayers’ money to plug the hole, a scenario Slovenia has once seen already – when the government of Janez Drnovšek opted to rid NLB and it’s Maribor rival NKBM of bad debts using taxpayers’ money and keep them rather than sell them dirt-cheap under an IMF dictate to some multinational corporation. On the other hand, some say that banks wouldn’t suffer as much and that Istrabenz should declare a bankruptcy, get rid of toxic assets and start afresh.

And now the banks on one side and the owners on the other side are quarreling about how to salvage the situation, whereas they’re mostly trying to salvage their face. Banks claim that they are the “economic owners” of Istrabenz, while true owners obviously dispute that and manoeuvre to have their people control the Supervisory board. Not that they did a brilliant job of supervising thus far.

And finally, there’s Igor Bavčar, CEO of Istrabenz whose share in the company he bought out is more or less worthless, but is reluctant to leave the post, just as a gambler doesn’t want to leave the table as long as there’s a chance of winning the big one.

But while Igor Bavčar is at the moment the most prominent of fallen financial angels, he is by no means the only one. Boško Šrot of Laško Brewery is apparently facing a similar fate, as is the investment industry as a whole. Apparently various investment firms, big and small, ran up as much as € 2.5 billion in debts, mostly putting up their investments as collaterals. And since the stock-market went down the drain, there is a real danger of these debts becoming highly toxic.

2.5 billion is a lot of money in Slovenian terms.