Milestone privatization deal signed

Feb 21, 2002
Bryan Bradley

NORD/LB said that under a deal signed Feb. 18 with the Lithuanian State Property Fund it agreed to pay 71 million litas ($17.75 million) for the shares in the country's third-largest bank and to invest another 65 million litas.

The deals comes after years of urging by the World Bank and the International Monetary Fund.

It expects to complete the sale by late March, pending regulatory approvals and a final review of the Lithuanian bank's accounts.

The bank is the last bank remaining in state hands.

"We see Lithuania as a very interesting market with great potential," NORD/LB board member Jorgen Kiosters said after signing the deal.

"(Zemes Ukio Bankas) represents our largest investment yet in the Baltic countries. It fits in with NORD/LB's 'Baltic Ring' strategy and shows we want to actively participate in the consolidation of the Baltic banking market," he added.

Lithuanian State Property Fund Director Povilas Milasauskas rejoiced that the deal had at last been signed after 3 months of negotiations with NORD/LB and two earlier failed privatization attempts.

"We have managed to attract a strong European player to the Lithuanian banking market, despite having to compete with the large number of other banks now being sold in Central and Eastern Europe," Milasauskas said.

Bank of Lithuania Governor Reinoldijus Sarkinas has always supported the sale.

"This is a known German bank, while Germany is a well-known market and one of our main trade partners," Sarkinas told The Baltic Times earlier.

"It means a very good counterbalance to the Scandinavian capital that has come to play a big role in Lithuania's banks," the central banker said.

Officials said privatization of the bank would increase foreign ownership of Lithuanian banking capital to about 89 percent, compared with 81 percent at present and just 58 percent at the end of 2000.

The Lithuanian agricultural bank is only half the size of Lithuania's Hansa-LTB, which the Lithuanian state sold last summer to Estonia's Swedish-owned Hansapank. But it boasts the second most extensive branch network in Lithuania, has made a name for itself in leasing and trading Lithuanian treasury securities and also owns two insurance companies.

Its smaller size and the better conditions of its finances and management should make restructuring easier.

The Lithuanian agricultural bank reported an unaudited net profit of 8.46 million litas for 2001, up from an audited profit of 7.29 million litas in 2000. Its assets totaled 1.87 billion litas at the end of December and it accounted for 13 percent of the Lithuanian market. In terms of assets the bank ranked after Swedish SEB-owned Vilniaus Bankas and Hansa-LTB.

NORD/LB said in a statement that it planned to merge its branch in Vilnius with Zemes Ukio Bankas and integrate the Lithuanian bank into its northern Germany-based group as rapidly as possible.

NORD/LB, the 10th largest bank in Germany, has been strategically expanding into northeastern Europe and aims to become the strongest German bank in the Baltic states. It opened a branch in Vilnius in 1999, became the strategic investor in Latvia's Pirma Banka in 2000 and recently set up a representative office in the Estonian capital Tallinn.

"The planned purchase of the majority of the shares in (Zemes Ukio Bankas) enables Norddeutsche Landesbank to expand its business in the Baltic Sea region even further," the bank's statement read, noting it already had considerable operations in Lithuania due to growing German corporate interest.

Trigon Capital, NORD/LB's financial adviser for the deal, predicted the investment would benefit Lithuania not only through increased competition in the banking sector, but indirectly by encouraging flows of foreign direct investment from Germany.

The European Bank for Reconstruction and Development presently owns 11.37 percent of the Lithuanian agricultural bank's shares, while Vilniaus Bankas owns 11.44 percent and 1.2 percent are held by private investors.

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