Balkans: Serbs for enthusiasm

Although there has been a downturn in M&A work, elections and legislative change have helped keep Serbia’s legal community busy

Serbians went to the polls last month, in the first elections for the Balkan state since it became an EU candidate in February.

The election was largely uneventful until the final stage. The incumbent government, a coalition of the Democratic Party and the Socialist Party, won enough seats to take power again, even though the Progressive Party and its running mates in the election won slightly more seats than the Democrats.

In the presidential run-off on the 20 May, however, the Progressive’s Tomislav Nikolic, seen as the nationalist candidate, beat the pro-EU ­incumbent Boris Tadic, leader of the Democratic Party. Nikolic had earlier threatened to pull out of the election, claiming fraud, although independent observers had been happy with the way the election was run.

Serbian lawyers and the country’s business community are generally happy with the results.

“There’s stability, there’s continuation of the same political platform and nothing will change,” says Joksovic Stojanovic & Partners partner Alex Petrovic. “This is the only country in the region, and ­perhaps Europe, where the government has survived these tough economic times.”

Petrovic does not think that the presidential results will change much politically.

“If the new president will stick to his presidential promises, nothing should change,” he predicts. “Right after his win was confirmed he reiterated that Serbia will stay on the EU course. Also, the presidential role is largely ceremonial and as such doesn’t have any impact on the business of running the country – this is the job of the government which should be led by Tadic’s party with the same political partners as before.” 

“In general, this is good for the country – this brings stability, particularly towards the expectation of ­Serbia becoming a member of the EU,” adds Jankovic Popovic & Mitic (JPM) senior partner Nikola Jankovic.

Karanovic & Nikolic founding partner Patricia Gannon is more cautious in her assessment of the results.

“In a nutshell, we’re surprised at the result and believe it’ll have an ­impact on investment in the country as it spells instability. We are, however, hopeful that it also presents new opportunities as yet unclear and are positively using this moment to focus on local business in need of ­expansion capital,” she says.

An economy in need

Kinstellar Belgrade partner Branislav Maric says the election results set the stage for important work to be done. Serbia is struggling economically, with its currency falling to a 10-year low against the euro in May.

The ­jurisdiction had agreed a $1.3bn (£822m) precautionary loan with the International Monetary Fund (IMF) in September 2011, but the loan ­programme was frozen in February.

In mid-May the Serbian Finance Ministry confirmed that the country had missed public debt and budget deficit targets. Its budget deficit for the first quarter of 2012 was RSD52.7bn (£374m), double that agreed with the IMF, while public debt equalled 46.8 per cent of economic output against a limit of 45 per cent set by the government.

“I think the political elite is aware of the fact that the situation is such that they should continue with the regulatory work of the government as soon as possible,” says Maric. “All in all, there are a lot of things on the ­economic agenda that need to be ­addressed as soon as the new government is formed.”

Although he welcomes the election results, Jankovic is concerned that the relatively weak majority of the ­reformed coalition will prevent any major changes to legislation or the economy.

Tijana Kojovic, a partner at Bojovic Dasic Kojovic, also thinks that change might not happen to the ­extent that it is needed.

“There’s predictability but, on the other hand, we as a country need some major changes and they probably aren’t going to happen – or they aren’t going to happen at the pace that is actually necessary,” she says.

However, something is required to kickstart Serbia’s economy. For law firms, 2011 was a quiet year and the general lack of activity has persisted into 2012, exacerbated by the election campaign and its effect on business.

Bringing business back

Some are hopeful that things will now pick up. Last year there were few significant corporate transactions in Serbia – in fact, just two broke through the €100m (£80.01m) barrier. The biggest deal was the July [2011] takeover of Serbia’s largest food retailer, Delta Maxi Group, by Belgian giant Delhaize. The transaction was valued at €932.5m (£746.2m). CMS Reich-Rohrwig Hainz (RRH) advised Delhaize, while a JPM team led by senior partner Nenad Popovic acted for Delta. The deal was the largest-ever private transaction in Serbia and affected ‘not only the chain’s 350 stores in the country, but also ­another 100 shops across the Balkan region.

On the finance side, one of the biggest deals that happened at the start of 2012 involved a €470m loan by a syndicate of banks led by UniCredit to Telekom Srbija. However, the loan replaced a proposed privatisation of the company, cancelled by the government in mid-2011, and ­followed a €380m re-purchase of 20 per cent of Telekom Srbija’s shares from the Hellenic Telecommunications Organization in December 2011.

Momentum from energy

Privatisations in Serbia are now “mostly finished”, confirms Harrisons Solicitors’ Mark Harrison, whose firm had been advising the government on the Telekom Srbija privatisation before it was canned.

As a result, firms are mainly ­involved in work in two areas. One is infrastructure and energy projects, which continue across the Balkan ­region and are attracting foreign ­investment. For example, Italian ­energy company Edison has signed a joint venture agreement with Electric Power of Serbia (EPS) to construct a thermal power plant in central ­Serbia.

Russian energy giant Gazprom is also planning to build a gas pipeline, known as the South Stream project, which will run through Serbia and ­Bulgaria on its way to Austria.

Meanwhile, Luxembourg-based private equity house Securum Equity Partners announced an incubator fund in November 2011 that will ­finance the creation of the world’s largest solar power park. In February  Securum signed a €1.75bn agreement to buy photo-voltaic panels from Italy’s MX Group for the park.

“Particularly in Serbia infrastructure projects are rather strong ­because after 20 years of war and ­instability, where nothing has been invested in infrastructure, the government is trying to put some money towards that,” explains Jankovic. He adds that highway and railway projects are also being ­proposed.

Petrovic points to mining and ­resources as another potential growth area.

“Just recently the state introduced a strategy for the management of major resources up until 2030,” he says. The strategy aims for Serbia to become the producer of at least 90 per cent of Europe’s lithium – a key element in the production of many electrical items – by 2020. According to Petrovic, this ambition and the presence of unexploited lithium and other mineral resources is leading major global mining companies to begin exploration in Serbia.

Beyond infrastructure

But much of Serbian lawyers’ time has recently been spent on advisory work rather than actual transactional work. A new company law led to a flurry of instructions for many firms to help get corporate governance ­issues sorted out for clients, while amendments to legislation on takeovers, cartels and capital ­markets provided similar work.

“This was all part of the push to do as much as possible on the harmonisation side to gain EU candidacy,” ­explains Maric. “For us lawyers that’s a big challenge because the entire landscape has changed significantly. For a number of clients we had to deal with issues relating to harmonisation of corporate governance, as well as other internal rules under the new legislation. That was one of the things we did frequently in the ­second half of last year and the ­beginning of this year.”

Joining the EU

The procedure for Serbia to convert its EU candidate status into membership is a long one, according to Gannon.

“We don’t expect too much out of EU integration in the near future, ­except for a flurry of legislation,” she adds.

Indeed, several countries in the past have spent years as candidates before negotiations with the EU for membership even begun. The hope in Serbia is that the government will try to progress the process as much as possible and that this will help ­encourage foreign investors to come to the country and indeed the region. Although some thought Nikolic’s election could slow this process down, others are confident that going into reverse is now impossible.

“With respect to the EU membership, I think Serbia has been on a long, very slow, but irreversible path towards EU membership – I don’t ­expect Nikolic to reverse that course. The first reactions of the EU officials to results of presidential elections have been relaxed and unconcerned,” Kojovic says.

Already improving

Harrison says he sees enormous ­untapped potential in Serbia.

“One of the barometers for me for Serbia is why hasn’t there been more greenfield investment? Why haven’t people chosen Serbia to build their factory?” he asks. “The critical thing here is the branding of Serbia. People in the West still think it has issues.”

Others agree that the need for ­foreign investment is crucial. They point to changes such as recent ­judicial reform, which saw the re-appointment of judges, as a sign of good intent with less impact than ­required.

Kojovic says work is needed to ­improve the commercial courts in Belgrade, despite the Serbian litigation landscape having moved on ­immensely in the past decade. She believes that the lack of continuing professional education for the judiciary makes it difficult for Belgrade Commercial Court judges to get to grips with complex commercial and financial disputes, leading to a ­mistrust of the system.

“In major deals and transactions parties almost never opt for the jurisdiction of the Commercial Court,” she says.

Instead, Kojovic explains, Serbia has invested heavily in improving its criminal court system – a necessary investment following the Bosnian war in the 1990s.

“There you can see a tangible ­improvement. That’s really a different animal from what we had 10 years ago, but because commercial disputes weren’t such a priority then I don’t think much has been invested there,” she adds.

A recent change that might make some difference to the court system is the introduction of private ­enforcers – essentially bailiffs, who will be able to aid in the enforcement of judgments and awards. This is a key change that could speed up the system, something desperately needed in an environment of growing disputes.

“There are a number of disputes right now and arbitrations that we didn’t have in the past,” confirms CMS RRH Balkan head Radivoje Petrikic.

In it for the long haul

However, even the recent legislative changes, EU candidacy and the ­stability provided by the elections look unlikely to encourage any more firms into the Balkan market. Harrison, who set up his firm in the late 1990s after a career at Linklaters and Eversheds, says it would not at ­present be worthwhile for any ­international outfits opening up in the ­region, although he is committed to it.

“We’re in it for the long haul. Maybe in 2014 we can start moving forward. With a stable government they’ve got to get people attracted to come here,” he says.

“In general, I’m rather positive about developments in Serbia though if you read the Serbian newspapers it looks like a disaster,” adds Petrikic. “I’m rather optimistic for ­future developments because I think there’ll be a lot of pressure from the European Commission and the EU. With this pressure we can hope that things will change.”

Montenegro in brief

Of all the countries in the former Socialist Federal Republic of Yugoslavia, Montenegro is perhaps one of the more promising jurisdictions. Although it is a small country, its mixture of coastline and mountains have made it a target for tourism and it is doing well compared to its larger neighbours.

When it comes to law firms, Montenegro has few large domestic firms. Many of the bigger transactions to have happened there have been handled by firms headquartered in Serbia.

Bojovic Dasic Kojovic (BDK), Harrisons Solicitors and Karanovic & Nikolic are three of the Serbian firms to have an office in Montenegro and all report considerable activity in the jurisdiction.

Harrisons founder Mark Harrison reports the recent completion of two deals in Montenegro and says he sees plenty of opportunities in the region. “If I were a Serbian law firm I’d get down there straight away and open up,” he enthuses.

BDK partner Tijana Kojovic also says her firm’s Podgorica office is busy, but adds that not everything beginning in Montenegro comes to a successful completion. She describes working on a major PPP project to build a hydropower plant for two years before the deal was axed.

“There’s a lot of enthusiasm, transactions are planned, but very few of these major transactions come to closing,” Kojovic warns.

She points out that comparing Montenegro to its larger neighbours is perhaps dangerous.

“Montenegro is a very special country. It’s so small and very easily managed so it’s very difficult to compare with other countries in the region,” she adds.

Balkan expansion

The majority of Balkan firms are content to work within their own jurisdiction, using referral relationships with other domestic firms for cross-border work. But this belies the fact that work spanning several countries in the region is increasing; as the Balkans continue to pull together, cooperation between states is increasingly common.

Belgrade-headquartered Karanovic & Nikolic has the broadest geographical coverage of any firm in the region, with offices in Serbia, both the Muslim-Croat and Serbian parts of Bosnia and Herzegovina, Macedonia and Montenegro. The firm is shortly opening up its sixth office in Croatia, hiring a team including DLA Piper senior associate Josip Marohnic and Wolf Theiss’s Aleksandra Raach.

Founding partner Patricia Gannon says competition in Croatia is fierce, with the top-tier domestic firms dominating the market and doing good work for good clients.

“In many ways the legal market is more mature [than Serbia’s],” she says, explaining that Croatian law allows mechanisms such as a sale and leaseback on property that cannot be done in Serbia.

Gannon says Karanovic & Nikolic’s move into Croatia is in response to the increasing trend for regional work. She believes that in a few years, the Balkans may resemble the Baltic states of Estonia, Latvia and Lithuania, where cross-border work has driven many of the largest law firms to pan-jurisdictional mergers.

“I’m hoping that in the next five years 40 per cent of my business will be pan-jurisdictional,” Gannon says, reporting success with the firm’s model over the past few years. “It surprised us how quickly the market has responded to that and how well that’s gone down as a product.”

Kinstellar Belgrade partner Branislav Maric agrees that “regional weight” is increasingly important and many M&A transactions are increasingly cross-border, involving several jurisdictions.

But the concept of a pan-Balkan firm is still not something that has taken off in the market more generally.

“We believe that lawyers should be engaged in the jurisdictions where their origin is and there’s no way to go into foreign jurisdictions without having really good local people and that isn’t always easy, particularly in the Balkans,” argues Jankovic Popovic & Mitic senior partner Nikola Jankovic. He says his firm prefers to build solid referral relationships with leading firms in the other jurisdictions, which are often smaller than Serbia.

Meanwhile, Bojovic Dasic Kojovic (BDK) partner Tijana Kojovic believes her firm’s membership of the pan-regional South East Europe (SEE) Legal Group fulfils all its regional needs. The alliance has members in all the former Yugoslav countries, although it is not present in the Republika Srpska – the Serbian half of Bosnia.

Kojovic reveals that BDK has examined the prospect of opening up in Republika Srpska’s capital Banja Luka, but for the moment thinks the level of transactions is too low to warrant a presence on the ground. Harrison is more enthusiastic, noting that “Banja Luka is the next natural port for us”, although an opening would not be immediate. He adds that Republika Srpska is an easier place to move into for a Serbian firm, as there are none of the cultural issues involved with launching in Muslim-Croat Sarajevo.

In the meantime, both Harrison and Gannon say the future of the Balkans as a region will lie in attracting finance from western Europe. Harrisons has an office in the City for this purpose, “to suck work back from the investment banks and the big law firms to the Balkans”, says Harrison.

Gannon, meanwhile, reports several recent meetings with UK investment banks looking at the region.

“The deal size is too small for them today, but they’re developing relationships,” she says.

Opportunity across the Balkans may not always be obvious, but it is certainly there.

Where to stay and eat in Belgrade

You have to go to Square Nine. It’s one of the leading small hotels, right in the city centre and there’s also a restaurant there.

Down by the river you’ve got Iguana, which is a classic, but you also have quirky new places. Homa is off the beaten track. It’s downtown, but not in an obvious place. For traditional Serbian food people would go to Vuk, off the main pedestrian street or, on the new Belgrade side, go to either Chameleon – international cuisine in a casino – or Zabar, which is a fine restaurant by the river. Belgrade’s really good by the river.

Patricia Gannon, Karanovic & Nikolic

Madera is a renowned bohemian restaurant located in the city zone with a lengthy history. The restaurant offers dishes from the national cuisine. It must be noted that Madera has the loveliest al fresco dining in the city, incorporated into the Tasmajdan park. The Kalemegdanska terasa restaurant is located in the prettiest part of Belgrade, in Kalemegdan, and is completely adapted to the ambience of the 13th-century fortress. Hidden away in a quiet corner from which the Belgrade sights and the zoo can be seen, the restaurant transforms from informal during the day to elegant and romantic in the evening. This beautiful restaurant offers dishes from national and international cuisines.

 The Cantina de Frida restaurant, bearing the name of famous Mexican artist Frida Kahlo, is located at the confluence of the Sava and Danube rivers, in the Concrete Hall. It has excellent food and a lovely view of the delta formed by the two rivers, as well as an entertaining musical programme, with the best bands in town playing far into the night.

The menu of the Cantina de Frida is based on numerous colourful and tasty dishes from Spain and the Mediterranean, in small plates (tapas-style), and on large plates designed to be shared with friends.

Nikola Jankovic, Janokovic Popovic & Mitic

Key figures

GDP (current US$, 2010): 38.4bn

Annual inflation (April 2012): 2.7%

Population (1 January 2011): 7,276,195

Life expectancy at birth: 74

Unemployment rate (November  2011): 23.7%

Source: World Bank, Statistical Office of the Republic of Serbia

Serbian Law Firm Profiles from


Joksovic, Stojanovic & Partners

Karanovic & Nikolic

Stankovic & Partners (NSTLAW)