Austrian investors proceed with caution

After the frantic years prior to the crisis, when Romania was the place to be for many Austrian companies, the Teutonic march has slowed in the past couple of years. Existing investors are fighting to preserve their positions and new ones have become scarce. BR takes a look at some of the most important changes made by Austrian investors in the past year.

Simona Bazavan

“Romania is still interesting for Austrian investors but things are no longer comparable to the situation in 2006-2008 when Austrian companies almost ‘flooded’ the country,” Rene Schöb, partner with the Austrian tax consulting and auditing company LeitnerLeitner, told BR.

A lot of Austrian firms are already active locally and are now looking at new destinations such as Turkey or Serbia instead of Romania for further investments, driven by the need to reach new markets, he added. “Compared to previous years, there are significantly fewer new investors from Austria.”

As for how Austrian companies perceive the performance of the local economy in the past year, Schöb said that judging by the firm’s client base, the general feeling is that the business environment has stabilized at a low level rather than improved.
Austrians’ complaints about the local market are the same as those of any other investors in Romania. Infrastructure is not developing fast enough and the administrative burden remains heavy. “Unfortunately, since EU accession, Romania has failed to undertake the adequate measures to improve both areas,” he added.

Figures tell a similar story. Austria has been Romania’s main source of foreign direct investments in many years. At the end of 2010, Austrian FDI in Romania amounted to EUR 9.2 billion but the figure rose just EUR 158 million in the first semester of this year, according to data from the Austrian Embassy to Bucharest.

Austrian companies are active in a large series of industries from banking (BCR, Raiffeisen Bank, UniCredit Tiriac Bank, Volksbank, etc) and energy (OMV Petrom) to retail (bauMax, Hervis Sports, Humanic, etc), wood processing (Kronospan, Egger and Schweighofer), construction materials (Baumit, Lasselsberger, Wienerberger, Bramac, Tondach, etc) and management consulting (Horvath&Partners).

However, the top two companies that spring to mind are Erste Group and OMV Group, both of which have announced changes this year. Erste is hoping to increase its share in Banca Comerciala Romana (BCR) by about 24 percent to 93.5 percent, while OMV is reconsidering its local approach in the context of its recently announced 2021 global strategy.

Austrian banking leads the way
Banking is by far the sector with the strongest Austrian presence with players like BCR, Raiffeisen, UniCredit Tiriac, Volksbank and Porsche Bank on the scene. The Austrians also have a strong presence in the local insurance market. Under the pressure of plummeting sales, recent years have seen several mergers between local insurance companies.

One such move announced this year is the fusion of Omniasig – controlled by Austrian Vienna Insurance (VIG) – and BCR Asigurari which had a combined business of approximately EUR 330 million last year.

Coming back to banking, this year’s main transaction could come from Erste Group Bank AG (Erste Group) – the main shareholder in BCR – which after more than a year of negotiations announced in September that it had reached an agreement with four of the five SIF minority shareholders in BCR – Banat Crisana, Transilvania, Muntenia and Oltenia – to acquire their 24.12 percent stake in BCR. Following this transaction, Erste Group’s participation in BCR is set to increase to 93.52 percent. The total value of the deal amounts to EUR 435.

“It has always been our strategy to hold the highest possible stake in our subsidiaries and we are glad now to have this possibility in Romania too. Despite the recent tough period, Erste Group as a strategic investor is taking the long-term view and we thus maintain our confidence in and commitment to Romania,” said Manfred Wimmer, chief financial officer, Erste Group.

SIF Moldova has also shown interest in the scheme should BCR’s listing not take place, which seems the most likely outcome.
The second major Austrian player on the market, Raiffeisen Bank, reported a 22 percent decrease in net profit taking the figure to EUR 39 million in the first half of 2011, down from the EUR 50 million reported in the same period of 2010. The bank’s total asset value increased by 13 percent, from EUR 4.57 billion in the first half of 2010 to EUR 5.17 billion.

The drop was triggered by overall higher expenses generated by inflation, higher provision costs and a 50 percent hike in the contribution to the Deposit Guarantee Fund, announced bank officials.

The total volume of loans rose by 23 percent to EUR 3.3 billion, while deposits grew by 4 percent to EUR 3.56 billion. Thus, the loan/deposit ratio reached 93 percent, from 79 percent in June 2010.

The total volume of loans increased by 23 percent to EUR 3.3 billion, while deposits increased by 4 percent to EUR 3.56 billion. Thus, the loan/deposit ratio reached 93 percent, from 79 percent in June 2010.

The corporate loans segment increased by 24 percent in the first half of 2011, compared to the similar period of 2010, while deposits did not register significant changes.
In the retail banking segment, the loans portfolio expanded by 23 percent and deposits by 5 percent.
Raiffeisen has 2 million clients, out of which 100.000 are SME’s and 8000 are corporate clients. At the end of June 2011, the bank had 545 units and 5.906 employees.

Austrians have the energy to march on
This September, the new OMV executive board presented a new strategy for the group through to 2021 with a focus on oil and gas and stronger growth in the upstream sector.

“The upstream business of E&P, the exploration and production of oil and gas, will assume a far more significant role. OMV will also experience strong growth in the gas sector – from the production and transport to the marketing of gas,” announced the company.

So, until 2021 OMV plans to reduce assets related to refining and marketing from the present 55 percent to 25 percent while exploration and production will grow their share in the business from 35 to 55 percent. By 2021 the Austrian investor also intends to exit some markets and strengthen its position on others.

OMV’s new focus on oil and gas production will also bring changes for its local operations.
“In Romania we will continue to invest in the Petrobrazi refinery and we intend to maintain our position on the fuel distribution market. (…) We have a good cash-flow and this will allow us annual investments of EUR 2.5 billion at group level,” said Gerhard Roiss, president of OMV, according to the Mediafax newswire.

Mariana Gheorghe, general director of OMV Petrom, said that investments in exploration and production will reach EUR 600-800 million or even more, depending on the market context.

In partnership with Exxon, OMV is currently exploring the potential of two blocks in the Black Sea, one of which could supply Nabucco, and it is also analyzing shale gas potential in Romania. The latter project could be completed in three years. Petrom will benefit from preferential royalties for oil and gas until 2014.

“Investments in the Black Sea will be in three figures. If we find deposits there, they will be huge, but the probability is very low. For us to invest in the Black Sea we need to know what the legal framework for the coming years will be,” said Roiss, according to Mediafax. He added that he has informed President Traian Basescu and Prime Minister Emil Boc of the group’s strategy and future activities in Romania, and he now awaits the local government’s long-term fiscal framework.

Earlier this year, Petrom took the decision to permanently close the Arpechim refinery, but it will not sell the facility. The company has also announced that it will reduce the capacity of its Petrobrazi refinery. Two weeks ago OMV denied media rumors that it intends to sell 139 of its local gas stations to Serbian firm NIS.
2010 was a good year for OMV Petrom. The company reported a RON 2.2 billion (EUR 521 million) net income for 2010, about 163 percent more than the previous year. Sales reached RON 18.6 billion (EUR 4.4 billion) – 16 percent up on 2009.

Renewable energy is one of the most attractive local industries to foreign investors and Austrian companies are no exception. The largest electricity producer in Austria, Verbund, plans to invest an estimated EUR 200 million in the construction of a 200 MW wind farm project in the Casimcea region. Works at the site began earlier this year.

The first phase of the road construction for the first cluster has been completed while the second was completed in September, announced the company. The test probes for the construction of the foundation were conducted successfully. “Construction of the plant foundations and the two 30/110-kV substations is planned for the summer months. The permit for the construction of the second part (100 MW) is expected in the middle of the second half of 2011,” reads the company’s report for the first semester.

Retailers consolidate their position
Out of all the foreign players active on the Romanian DIY market, bauMax was the retailer with the most dynamic expansion last year. The Austrian chain opened four new units in Bucharest, Pitesti, Constanta and Timisoara. This March the company opened a new unit in Bucharest, bringing its national network to 14 stores.

Looking at the FMCG industry, winemaking has proven an attractive investment opportunity in the past few years and the Austrians have a hand in the trend. This year, premium wine producer Lacerta Winery officially opened its vine estate in Fintesti, in the Dealu Mare region, following a total investment of approximately EUR 8 million. The business was set up in 2003 and is owned by four foreign investors, three Austrians and one German.

simona.bazavan@business-review.ro

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