SLEEPING WITH PENGOVSKY

Didn’t This Get Us In Trouble The First Time Around?

I was meaning to write this one up for the past two weeks. In case you’re wondering how some investment companies can post huge profits in the middle of the crisis, here’s part of the answer.

(author: Lisa Haney; source)

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

(source: NYT)

I don’t know about you, but this HFT seems wrong on a very fundamental level. Admittedly, I’ll have to see what this guru I know will say on the issue, but as things stand two things come to mind: Wasn’t computer-ran trading what caused the Black Monday of 1987? And secondly: wasn’t this kind of market tweaking by profit-hungry investment banks what got us in trouble in the first place?

Slightly OT: It seems that it is not economic changes that hit Slovenia with a couple of months’ delay. The same apparently goes for economic revelations as well. The Rolling Stone magazine article linked above which tells the tale of how theCredit Crunch began, was widely circulated in Slovene media… two weeks ago.

Game Over

(source of picture, DIY at despair.com)

Yesteday Nova Ljubljanska Banka (NLB) impounded shares of Laško Brewery and Mercator from Infond Holding, which had defaulted on its loans it took out to buy Laško Brewery. As you know, Infond Holding is ultimately controlled by Boško Šrot and his company Atka Prima, with another company – the infamous Kolonel – in between the two. Through Infond Holding Šrot was performing MBO of Laško Brewery for which NLB alone granted a loan of some 130 million euros. As Infond defaulted on its loans (a combination of recession, investigation by Competition Protection Office and political pressure on banks to stop being excessively nice to Šrot), banks started making nervous noises and began talk of impounding shares Infond put up as a collateral if the company (and ultimately Šrot) cannot come up with cash to pay off the loans.

Šrot was obviously in no condition to do that, as his house of cards was built on a presumption of a continuously rising share prices of investments like Mercator, a stable cash-flow from Laško and subsidiary companies as well as politicians turning both blind eyes to his antics. Two out of three would have been nice, but since none of the above is the case any longer, the inevitable happened. Banks are starting to collect and they are none too nice about it. Yesterday NLB sold 23% of Laško brewery and 10% of Mercator and cashed in on some 157 million euros, which means that it just about broke even. Today, Abanka (a smaller bank) is following suit, selling some 23 million-worth of shares which it impounded from Infond Holding, and other banks are expected to do the same.

Thus Boško Šrot no longer owns Laško Brewery and – by extension – no longer controls any of Laško’s assets, which include Delo newspaper. He basically no longer owns anything beyond immediate assets of Atka Prima, which are bound to be impounded as well. The combined value of 180 million euros is peanuts with close to a billion euros of debt Šrot is said to have run up while trying to take over Laško.

Game over.

EDIT: It was only an hour or so after this post that Infond Holding officially declared that it is insolvent. End of story. Only pieces remain. And possibly criminal charges.

Strange Times We Live In

According to various sources, North Korean leader Kim Jong Il is said to have received a letter from President Obama, hand delivered by former President Bubba Clinton. The White House has promptly denied that the Big O. and the Beloved Leader are pen-pals, but apparently Kim said that in order to improve his position within the North Korean hierarchy.

Bubba and Kim keeping a straight face (source: The Beeb)

Which should tell you at least two things: a) that no dictatorship runs on a strict top-to-bottom approach and is hence not a monolith and b) that Obama carries weight even people in North Korea. Which makes for a nice irony, when a leader of a country, which sees the US as its arch-enemy, gains brownie points by getting a postcard from the person, who personifies that particular enemy.

Strange times we live in…

Will Slovenia Lift EU Blockade of Croatia?

According to Croatian weekly Nacional, Slovenia and Croatia have reached a compromise solution regarding the disputed Croatian documentation which precipitated Slovenian blockade of Croatian EU entry negotiation.

Prime Ministers Pahor and Kosor last Friday. Notice how his tie matches her dress (source)

The magazine reports (Croatian only) that an agreement has been reached (or is very close to being reached) during last Friday’s meeting between the newly minted Croatian PM Jadranka Kosor and her Slovenian counterpart Borut Pahor.

If the report is correct (neither Zagreb nor Ljubljana were willing to comment on it) it would mean that Croatia shifted from its position that documents as such do not predefine the non-existent maritime border between two countries, which it was willing to confirm in a separate protocol. Slovenia, however, claimed that documents do indeed predefine the maritime border and promptly demanded that Croatia withdraws the documents, but then quickly ammended its position, saying that it will not lift the blockade of Croatian negotiations until a border agreement has been reached. According to the magazine, Zagreb agreed to withrdaw all offending documents while Slovenia agreed to lift the blockade immediately after the withdrawal.

As you know, all hell broke loose after Slovenia instituted the blocase, especially when we were close to (and yet, it turned out, far away from) holding a referendum on Croatian NATO entry. At that time pengovsky speculated that although the push to solve the border question at this time might have been a good idea, there lurked a danger of Slovenia trying to overdo it and humiliate Croatia while the latter is in danger of totally losing touch with reality, since it was used to playing tables against Slovenia. It seems that this scenario more or less unfolded as predicted, which precipitated the second boiing point:

The sudden and unexpected resignation of Ivo Sanader from the post of Croatian PM was never fully explained. The closest he came to an explanation was saying that he couldn’t deny that European issues played a part in his resignation. At that time pengovsky wrote that it is possible, that Sanader was removed in a in-party coup after it became apparent that his hard-line rhetoric against Slovenia brought Croatia in a pretty bad fix, which he couldn’t lead her out of. Not without totally losing face. But another view prevailed: namely, that there had indeed been a party coup, but from the other end. That it was the true right-wing hardliners and anti-EU politician which had forced him to resign, because he was too pro European.

But if Nacional’s report is correct, than pengovsky’s original thesis seems plausible, since the first thing the new government in Zagreb did was offer a compromise, which – apparently – the government in Ljubljana is only too willing to accept. After all, removing the documents was what Slovenia demanded originally. Such an agreement would dramatically reduce tensions between the two countries and (best of all) would not have to be ratified in both countries’ parliamanets as it would not be an international agreement but rather just a policy change It would also postpone the border issue indefinitely, probably making it far less important once both countries are EU members. Which is good and that is why pengovsky hopes that the report is correct.

If the deal had been reached (and again, this is by no means certain) then this is the second big foreign policy scoop for Borut Pahor’s government (the first one was when he presudaded Italian PM Silvio Berlusconi not to include Slovenian minority in Italy in his 2009 budget cut). The only question is, whether PM Pahor and foreign minister Samuel Žbogar meant to play it like that or were they just lucky…

Parting Is Such Sweet Sorrow

As you know, after posting yesterday’s post, Laško Brewery (under new management) issued a statement saying that it has received word from layers of Pierpaolo Cerani, owner of company Iniziative Generali 96 (to whom Boško Šrot reportedly sold Kolonel, a key company in the chain of ownership of Laško), that it had purchased a majority stake in Kolonel and is thus the new owner of entire Laško Brewery and its companies and assets. Pengovsky edited his post to reflect this. However, only minutes after that, POP TV website reported that Andrijana Starina Kosem, Boško Šrot’s right-hand and henchwoman, was replaced as CEO od Delo newspaper (owned by Laško). If you follow pengovsky on Twitter, you know that as well. But this where the plot thickens…

Boško Šrot (centre) and Andrijana Starina Kosem (right) on a handball match (source)

As I already wrote, Delo newspaper is an important factor this particular game of chess, but not only in terms of money it could fetch if sold. Ran by Andrijana Starina Kosem (nicknamed ASK) it served Boško Šrot’s interests directly, either by spinning information his way or attacking his enemies. That said, it should be understood, that Delo was not Laško’s company newspaper, but every time the going got tough, there was no mistaking who the owner is. So replacing ASK by Laško’s new management and citing differences in vision at first seemed like “cleaning out the barn”. You know – just to let everybody know there’s a new boss around. But…

Today’s Delo ran an exclusive interview with signore Cerani, where he said that he bought 30% stake in Kolonel, denying Laško’s PR release which quoted his lawyers as saying that he had bought a majority stake in Kolonel and thus owns Laško. Furthermore he refused to say how much he paid for 30 percent of Kolonel and said that he will not sell Laško’s assets and doesn’t think company’s debts are a huge problem.

This is where it gets interesting. The journalists asked Cerani “How much debt does Laško have?” and Cerani answerers “A lot, I’m sure. But that’s not the biggest problem, The biggest problem is that Infond Holding cannot exercise its ownership rights [due to a decision by the Competition Protection Office]. (…) We’re prepared to go to the European Court to insure that it can“. Later in the interview he said that he’d like to meet with the finance minister to present his rescue plan for Laško.

The above of course shows that Cerani doesn’t have the foggiest about what is really going on in Laško and is bluffing through and through. I mean – meeting with the finance minister? What the fuck? Going from not knowing how much debt the company you just bought has all the way to threatening with the European Court? Really. Seems like Cerani’s ego is writing checks his body can’t cash in. Adding to that contradictory statement by him and his lawyers about how much of Kolonel did he really buy shows that Cerani is quite probably Šrot’s stooge, likely being paid for stirring the shit on Šrot’s behalf. This is corroborated by yesterday’s swift removal of ASK by Laško’s new management. She was replaced late in the afternoon, quite probably after the interview with Cerani had been made and filed for publishing, which shows that the interview was done at Šrot’s behest rather than as a result of independent editorial decision. The fact that ASK-ran Delo was the only media able to “get to” Cerani only
reiterates the above notion.

The Delo angle of the story is a complication unto itself. According to pengovsky’s information, Laško (then still ran by Šrot) upon snatching Delo from under Janez Janša’s control in 2007 signed a management contract with ASK’s private company, so she was never actually employed by Delo, but was rather “outsourced”. Reputedly, that contract is a nasty piece of legal work so it is entirely possible that ASK will come back to haunt Delo and Laško’s new management. Not that a lot of people will miss her if she’s gone for good. Maybe the editor-in-chief will. But he’ll adapt. Apparently he’s very good at adapting.

Anyhow, he way things stand now pengovsky is willing to bet that Šrot never really sold Kolonel to Cerani, whose only purpose in to act as a straw-man and stir up some more shit. I mean, if you bought a company (even just temporarily, to park some shares for your friend), wouldn’t you like to know what is it you’re buying?

The Italian Job

As of last Thursday Boško Šrot is no longer CEO of Laško Brewery. Officially, he tendered his resignation in order to alleviate the pressure Laško was under lately and calm things down He was succeeded by Dušan Zorko, CEO of Ljubljana-based Union Brewery, which Laško took over in the so-called brewery war of 2002 when it clashed with (and won) Belgian Interbrew (now ABInBev). In the days following the resignation it became clear that the move was only a beginning of a fast-paced chess game which is still going on and where Šrot is now apparently on the defensive. However, he is by no means on the run.

(source of original picture)

Namely: Even though he resigned as CEO of Laško Brewery (or “was resigned”, which is local-speak for being forced to resign), Boško Šrot remains the majority shareholder of the company via his company Atka Prima, which owns 78 percent of straw company Kolonel, which owns 71 percent of investment company Infond Holding, which in turn owns 55 percent of Laško Brewery. And the brewery itself owns entire Slovenian drinks industry. So, by resigning, possibly forced to do so by the banks which bankrolled his juggling of shares and now want their money back, Šrot is actually better off. He remains the single largest owner of the brewery, while the burden of managing a heavily indebted, but (this must be said) still very much solvent Laško Brewery now falls on Dušan Zorko.

And this is the biggest difference between Laško and Istrabenz, or – if you prefer – between Boško Šrot and Igor Bavčar. The latter ran Istrabenz into the ground by trying to finance his own MBO by draining the company financially, while the former has a much bigger war chest and several layers of defence between himself and the company he ultimately controls. And he just added another layer, which some people interpreted as a panic move, but it might just prove to be a very shrewd one. Yesterday Delo daily reported that Atka Prima (the company directly owned by Šrot) sold Kolonel (the straw company) to an Italian company Iniziative Generali 96 owned by one Pierpaolo Cerani and based in Trieste, just across the border with Italy.

The fact that the supposed sale was first reported by Delo newspaper, which is owned by Laško, naturally raised eyebrows and that alone was a clear indication that something was fishy about it. Things increasingly smelled like a fish market on a hot Saturday afternoon after a bit of googling showed that Signore Cerani was involved in the co called Savoy Scandal which rocked Bulgaria three years ago (not that Bulglaria isn’t a muddy pond with all kinds of fish in it, but this one did involve its PM and former king). And today Dnevnik daily reports that Šrot sold only 30 percent of Kolonel, keeping the other 70 firmly in his hands. And the only one saying anything about it is Signore Cerani, who indeed confirmed the deal, but apparently did so in the vaguest terms possible.

At the moment this looks as a dummy sale, another case of “parking shares” with a friendly company, an activity which Šrot is very skilled in. Obviously the Italian is getting something out of it, but most likely nothing more than a commission – possibly the said 30 percent of Kolonel, while Šrot gets some much needed hard cash to placate the banks which have already requisitioned Infond Holding’s share of Mercator, because the company (the immediate owner of Laško) ran out of cash to pay back the loan. And while banks cash in on Šrot’s collaterals, he is regrouping, apparently prepared to fight it out and protect his ownership of Laško Brewery to the last. In this he will apparently get a helping hand from the new CEO of the brewery, who said upon taking office that his goal cleaning up Laško financially, even by selling assets if needs be. And some of those assets can fetch a lot of dough. Like Delo newspaper for example. Or even some of the less lucrative parts of his drinks empire.

Upon hearing of Šrot’s resignation a lot of people thought this was the beginning of his demise. Not even close. If before last Thursday he was responsible for running the entire empire (Laško Brewery with its numerous assets as well as every company in a complicated chain of ownership) he can now focus solely on ownership, while Dušan Zorko (the new CEO) takes care of keeping the company solvent and continuing paying debts to finance Šrot’s buyout of the brewery. The Italian Job is here merely as a diversion to help Boško Šrot regroup and stave off future attacks by the Competition Protection Office, which is slowly building the case against Šrot and Laško.

EDIT@1500 hrs: According to a statement by Laško, Pierpaolo Cerani confirmed, via his lawyer, that he did indeed buy a majority stake in Kolonel. If this information is correct, this means that for the time being he controls the entire Slovenian drinks industry. However, this does not mean that he is not providing “parking” services.

Stožice Stadium Secures Shape (Sort of)

So, today pengovsky posts what he meant to yesterday: an update on the state of construction of the new Ljubljana football stadium. Originally promising to be finished by autumn 2008, mayor Zoran Janković revised the deadline after it transpired that the city (contrary to public statements of Janković’s predecessors) did not own all real-estate needed to build the stadium. When that particular problem was solved, mayor Janković set the new deadline for 30 June 2010. Truth be told, the city still has to buy some property to build the controversial Titova Street which is basically a part of stadium infrastructure, but apparently that is being taken care of.

In the mean time, the project itself took a couple of blows, as Delta retail chain backed out of a 220 million euro deal. It took months to find another partner and finally it was Austrian Supernova who bit the bullet in the end. On June 30th (almost a month ago), with exactly one year to go, mayor Janković organised a tour of the stadium construction site. Everybody and his brother attended, The Firm™ did a piece and today pengovsky posts a gallery of the construction site as it was a month ago.