With approximately 20 companies in Serbia set for privatisation in the second half of 2019, now is a good time to review the current provisions of Serbia’s Privatisation Law (“Privatisation Law”). The current wording of the law, which took effect in August 2014, introduces the concept of a “strategic partnership” as a completely new model for privatisations, and this may be the preferred model in the upcoming privatisations.

Strategic partnership

Under the Privatisation Law, a strategic partnership is a model of privatisation implemented through an institutional relationship between local and international companies as strategic investors/partners (“Strategic Investor”), either with a company set for privatisation or with the Republic of Serbia.

The primary objectives of a strategic partnership are to inter alia: secure financing, increase productivity and secure new jobs, professionalise management, and generally to create conditions for the manufacturing of goods or provision of services to end-users.

The two main forms of a strategic partnership are:

– A joint venture via the establishment of a new company (“New Co”)
– The capital increase of an existing company (“Existing Co”)

Joint venture via establishment of a New Co

The decision to enter a strategic partnership through the establishment of a New Co shall be rendered by the Government of the Republic of Serbia (“GoS”) based on the proposal of the Ministry of Economy (the “Ministry”).

The process of establishing a New Co by the GoS and the Strategic Investor shall be carried out pursuant to the relevant legal framework regulating the status of companies. The agreement on the incorporation of a New Co is to be signed by the representatives of the GoS and the Strategic Investor.

The contribution of the Republic of Serbia to the New Co’s capital shall be in-kind assets. Such assets shall be previously acquired by the Republic of Serbia from a company that is set for privatisation via a strategic partnership in lieu of the settlement of claims that the Republic of Serbia has towards the company. If there is a mortgage over the assets representing the in-kind contribution of the Republic of Serbia to the capital of New Co, the consent of all secured creditors in whose favour such mortgages were established must be obtained.

Capital increase of an Existing Co

If the GoS, in line with the Privatisation Law, decides that a certain company is to undergo privatisation through the application of the strategic partnership model via capital increase, the capital increase is to be made by the Strategic Investor in cash or in kind.

The agreement on the increase of capital of an Existing Co shall be concluded by the representatives of the GoS, the Existing Co and the Strategic Investor, pursuant to the relevant legal framework regulating the status of companies.

Strategic partnership agreement and monitoring of its performance

Due to the importance of strategic partnerships as a privatisation model, and pursuant to the Privatisation Law, the GoS has adopted secondary legislation regulating in detail certain procedural and material issues relevant to the process, i.e., the Decree on Strategic Partnerships (“Decree”), which was initially adopted in 2014 and most recently amended in 2016.

The Decree inter alia regulates the process of negotiations of the Strategic Partnership Agreement (“SPA”), its execution, and the monitoring of its performance.

The SPA is executed as either an agreement on the incorporation of a New Co or an agreement on the capital increase of an Existing Co. A regulated negotiation process, led by a special panel formed by the GoS for this specific purpose, precedes the execution of the SPA.

The SPA is published on the official websites of the Ministry and GoS within three days of its execution by the parties.

The Ministry is authorised to monitor the performance of the Strategic Investor’s contractual obligations envisaged by the SPA.

The monitoring process is performed on the basis of authorised auditor’s reports that the Strategic Investor is obliged to submit to the Ministry for the duration of the SPA, as well as on the assessments of experts specialising in investment matters.

The Ministry prepares a report on the monitoring process, determines the fulfilment of contractual obligations and proposes appropriate measures to the GoS.

For the accuracy and completeness of the documentation and information provided to the Ministry relevant to the monitoring of the performance of contractual obligations, the Strategic Investor and the person authorised to represent the New Co or Existing Co shall be accountable under criminal and tort liability.

Choice of Strategic Partner via a public collection of bids

As a general matter, it should be noted that the Privatisation Law contemplates the following privatisation models and methods, which may be combined where suitable for a particular privatisation scenario:

– capital sales via a public collection of bids with a public auction and due application of the relevant capital markets and takeover rules;
– asset sales via a public collection of bids with a public auction;
– transfers of capital free of charge to employees or Strategic Investors (in the latter case, the rules providing for government incentives would also apply); and
– strategic partnerships via a public collection of bids.

A public collection of bids is carried out by announcing the public invitation to choose a Strategic Investor.

– The GoS defines the qualification conditions that have to be fulfilled by the Strategic Investor.
– The Ministry publishes the public invitation.
– The public invitation is published in at least one well-read local daily newspaper distributed on the entire territory of the Republic of Serbia and on the official website of the Ministry, at the latest 30 days before the deadline for the submission of bids.
– The content of the bid for the strategic partnership and the amount of the deposit are determined by the GoS based on the recommendation of the Ministry.

Source; mondaq

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