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Serbian Telecom Dials Direct to Bosnia

26 06 2007  Serbia’s state-owned operator moves into the Bosnian market as its takeover plan rolls into action.

By Marijana Djurdjevic in Banja Luka and Erol Mujanovic in Sarajevo

Sharply criticised by some, equally admired by others, the deal is done.

Serbia’s state-owned telecommunications company, Telekom Srbije, wasted no time swinging into action as the new owner of its counterpart in the Republika Srpske, the majority Serb statelet in Bosnia-Herzegovina.

Predrag Culibrk, Telekom Srpske’s newly installed general director, announced free mobile roaming in Serbia and Montenegro for all Telekom Srpske clients, from July 1.

The speed of the announcement left little doubt that Telekom Srbije intends to use its new position to move former Yugoslav telecoms markets with its acquisition, not only in Bosnia-Herzegovina.

Culibrk, an executive in Belgrade as the Serbian company’s strategy and development chief until last week, took the reins at Telekom Srpske following Telekom Srbije’s payment of 646 million euros for a 65 per cent share in the Banja Luka based company.

In addition to this main payment, the Serbian company submitted a 50 million euro performance bond covering a 12-month investment obligation, as detailed in a post-purchase business plan.

The price tag of the sale in itself merits serious attention in the markets of the former Yugoslavia. Equal to roughly one fifth of the Republika Srpska’s gross domestic product (GDP), it was a record-breaking sale for Bosnia-Herzegovina and constitutes the largest single foreign direct investment by any Serbian company to date.

Yet since the sale was agreed upon earlier this year, analysts have vigorously debated its merits – often questioning whether its purposes were political or business oriented.

Statements by Milorad Dodik, prime minister of the Republika Srpska lent the sale a populist angle early on. Some 100 million euros from Telekom Srbije’s payment are earmarked for a special fund for impoverished eastern areas of the Bosnian Serb statelet, he says. Another fraction of funds from the sale is likely to be ploughed into his government’s hefty 4.4 billion euro economic development programme through 2010.

“Every citizen of the Republika Srpksa will feel the benefit of this privatization,” Dodik says.

However, the sale is not a privatization in the usual sense of the term. The buyer is itself a state-controlled company. Telekom Srbija is 80 per cent owned by the Serbian government, with the remaining 20 per cent of shares held by the Greek telecoms operator OTE listed in Athens, London and New York.

The Serbian company’s winning bid came after a meeting last September in which Serbia and the Republika Srpska struck a bilateral deal on “special parallel relations”, which made reference to the state of Bosnia-Herzegovina but which was reached without Sarajevo’s participation.

Political considerations aside, the measurable facts of the deal are laid out in the sales contract and in the 700 million euro Citibank loan package Telekom Srbije secured in order to finance the acquisition.

An analysis of the two companies’ financial statements with reference to these contracts indicates that, despite critics’ claims that Telekom Srbije overpaid, the package fits within the Serbian company’s means under current market conditions.

Moreover, analysts predict that market conditions are likely to change to the company’s advantage as it takes advantages of new economies of scale, growing mobile telecoms market saturation and access to Bosnia-Herzegovina’s unified telecoms market.

Despite the onerous size of the loan package, the combined net profits of Telekom Srbije and Telekom Srpske in 2006 would have supplied sufficient funds to pay back almost one fifth of the entire amount.

However the contract with Citibank foresees much slower repayment than this, thereby freeing up profits for a promised 4-year investment plan worth 344 million euros.

The loan must be paid in three parts. First, 300 million euros will be repaid over the next five years, with a 2-year grace period, at an interest rate of 1.5 per cent. Second, 100 million euros is designated as revolving credit over a further five years, at the same interest rate. A third portion, 300 million euros, is to be repaid over the following two years at a reduced rate of 1.15 per cent.

Rajko Tomas, an economic analyst in Banja Luka, says the obligations for repayment and investment are laid out in a way that, if implemented properly, could make Telekom Srbija a market leader in the wider region.

“With very precise obligations detailed in the contract, they want to show that they have serious intentions,” he says.

However, the market’s response to the sale’s finalization has been uncertain. After rising for months after initial news of the sale, Telekom Srpske share values on the Balkan Luka Stock Exchange have slumped since April and this week slipped below the pre-announcement value of 2.59 Bosnian convertible marks per share for the first time since last December.

Such uncertainty may reflect in part shareholders concern that Telekom Srbije is unproven outside Serbia. By contrast, other telecoms privatizations in the region have brought in major European players, most notably Deutsche Telekom in Croatia, Macedonia and Montenegro.

However, the announcement last week that Albania’s Albtelecom would be privatized to operators based in Dubai and Turkey, without competition from other bidders, may signal that leading European telecoms’ appetite for Balkan market share is waning.

If true, whether this is good for Telekom Srbije and its new subsidiary remains to be seen.


Marijana Djurdjevic is a journalist with Radio Televizija Republika Srpske in Banja Luka. Erol Mujanovic is a Balkan Insight contributor. Balkan Insight is BIRN’s online publication.

This article was published as part of the project: "Bosnia and Herzegovina and Neighbours: Training and Reporting on Economic Dialogue" supported by the British Embassy in Sarajevo.