Kallas condemns time change

The Baltic Times, TALLINN
By Kairi Kurm
Oct 29, 1998

The European Union way is not the best way for everything, according to Siim Kallas, member of the Estonian Reform Party and former president of the Bank of Estonia.

Kallas has been one of the country’s most outspoken critics of the summer-winter time changes. Last weekend, when the clocks were turned back, Kallas publicly hoped the country would end the policy and not tinker with the time again, come spring.

“There are stupid, uncomfortable and unhealthy administrative customs that we should put an end to,” wrote Kallas in the daily Paevaleht.

The law, adopted in 1996, says clocks are moved forward one hour on the last Sunday of March and moved back an hour the last Sunday of October.

The law is in accordance with European Union directives, which are effective until 2001.

Supporters of the time change say it helps cut electricity costs, but Kallas said the cost of society’s recovery from the confusion the time change wipes out savings on electricity.

The Ministry of Social Affairs has backed Kallas up. It recently commissioned expert analysts from the Tartu Physiological Institute who found the time change caused insomnia and stress in nearly 3,000 people surveyed.

“Not all the countries in the world follow this method of transition,” Kallas wrote. “One of the arguments is that in neighboring countries, the time is changed, and for travelers, it is more comfortable [if Estonia changes also]. Let the travelers change their clocks. Why should the whole nation do it?”

Source: http://www.baltictimes.com/news/articles/3242/

Fatter wallets for Estonian taxpayers

The Baltic Times, TALLINN
Oct 29, 1998
Kairi Kurm
Estonian taxpayers can expect to save an additional 78 kroons ($6) per month from their income after a new agreement was signed that increases tax-free allowances by 60 percent and raises the minimum wage from 1,100 to 1,250 kroons per month..

The agreement was signed Oct. 22, between Prime Minister Mart Siimann, Trade Union Association head Raivo Paavo and Director of the Association of Employers and Industry Henn Parn. According to the agreement, the national hourly wage would according to the agreement be 7.35 kroons.

Unlike in many Western countries, the decision was made trilaterally by the government, the employees and the employers. The preliminary decision of the employers was to raise the minimum wage to 1,400 kroons and tax free allowances to the same level with the minimum living wage, which is about 1,100 kroons. The government’s preliminary proposition was to raise the minimum wage to 1,250 kroons and leave the individual’s tax-free allowance on the same level. The employees, on the other hand, agreed with a 1,200 kroon minimum wage.

The new accounting method for tax-free allowances will apply to wages earned beginning Jan. 1, 1999.

According to Toivo Roosimaa, the task of enforcing the bill will become a burden for the government elected in March 1999 because the state budget for that year is already prepared.

Roosimaa said it is not clear how much revenue from income tax the budget will lose, but it may be around half a billion kroons. On the other hand, he believes it will all come back in the same amount in revenues from taxes of contribution or fines for example. Fines in Estonia are tied to a minimum wage.

The other advantage for the government, Roosimaa confessed, would be the inflation that eats up 10 percent of the exempt taxes held back by the government.

Roosimaa also stressed Estonian wage levels vary exessively, at times ranging anywhere between 4,000 and 100,000 kroons per month. Both the trade union and the goverment are looking to stabilize this trend.

“The other problem is that in our country, wages are not tied to a qualifications degree, which means that a highly educated official may receive less than a good constructor,” said Roosipuu.

According to statistics, the minimum wage is the highest in Lithuania – about $107.50. In Estonia, it is $80.73 and in Latvia $71.55. Roosimaa, however, said it is foolish to compare these figures since the cost of living is different in all three countries.

Source: http://www.baltictimes.com/news/articles/3260/

Pharmaceutical plant wants off Tallinn bourse

The Baltic Times, TALLINN
By Kairi Kurm
Oct 29, 1998

The only pharmaceutical company listed on the Tallinn Stock Exchange asked Oct. 14, to be removed from the list, but stock exchange officials have denied the company’s request.

The Tallinna Farmaatsiatehas pharmaceutical plant is the first company that has sent an application for ending the quotation, but several companies have had the same idea. According to a report by Baltic News Service, Estonian Security Service and Merko Ehitus, a construction firm, would also like to end trading of their shares on the stock exchange. Most say having shares on the TALSE is not as attractive as it once was and requires a lot of time and committment.

Indrek Ild, the sales manager of the pharmaceutical plant, said there were three reasons why the company wanted to be taken off the exchange. The first is the declining economic situation in Estonia and Russia where sales have been low. Also, she said investors have shown little interest in buying company shares.

Finally, she said bad news about the companys’ stock price has been bad for business. The company is planning to decrease its operating costs and production costs by shortening working days and dismissing 85 employees.

“The decision was induced by the impact of all three factors,” explained Ild. “If the shares go badly, it does not mean that the company’s value has decreased. Neither does it mean that our product’s quality is not good enough.”

Arno Kaseniit, head of the company’s board, added, “It is not good, if a share falls from 250 kroons to 5 kroons,” referring to the movement of the shares last year.

In addition, pharmaceuticals production and sales have decreased recently due to the Russian crisis and the bad economic situation in Estonia.

“Our production has decreased significantly. About 40 percent of the company’s sales are targeted at the Russian market,” said Ild.

The company has changed the forms of cooperation with Russian clients and has put a lot of effort into finding new customers in the West and in the Baltic states.

The company is more intensively cooperating with the Latvian drug maker Grindex to market medicines on new markets and increase its share on the Estonian market. Grindex also owns 55 percent of Tallinn pharmaceutical’s shares, and the press has speculated on Tallinn pharmaceutical’s move to Latvia.

During the first half of the year, the plant posted a loss of 250,000 kroons ($19,200) while last year, profit for the same period was 21 million kroons. The group’s sales turnover for the six months was 57.5 million kroons, while the turnover for 1997 was about 82 million kroons.

According to Gert Tiivas, general director of the TALSE, the company’s removal request did not correspond to requirements of the bourse regulation.

“They did not give any solutions for the shareholders and did not describe their further actions on how to protect the rights of all the shareholders,” Tiivas said. “It is more difficult for a shareholder to trade on a free market and it is also difficult to get adequate information about the company if it is not listed on the TALSE.”

The pharmaceutical company was also fined 100,000 kroons for its actions since the application reached the TALSE a day after the decision was made. Bourse regulations require that all information that might influence a company’s stock price be immediately relayed to stock exchange officials.

Trading of the shares was suspended from Oct. 16, until Oct. 20, for TALSE to make a decision in this matter.

The TALSE commission decided to transfer the shares from the main list to the supplementary list since the average market value of the shares over the past six months had dropped below 200 million kroons.

The council of the pharmaceutical plant will discuss further actions at a meeting next week.

Source: http://www.baltictimes.com/news/articles/3257/

Security company lands new partner

The Baltic Times, TALLINN
By Kairi Kurm
Oct 22, 1998

The Swedish security company Securitas announced last month it will buy Estonian Security Center, the fourth largest Estonian security company.

The ESC had been hunting for a foreign investor this summer and is happy to sign the deal with Securitas, a company active in the security, cash-in-transit and alarm business.

The ESC will increase its share capital to 14 million kroons ($1 million). The company announced it plans to have a turnover of 60 million kroons by increasing its market share to 20 percent.

The ESC together with Securitas Eesti, the Estonian subsidiary, presently controls 10 percent of the market.

“I see two big security companies in Estonia in the future, ESS and Securitas,” said Bjorn Brisere, Securitas manager for the East European market.

ESS, after the merger with Eesti Valvekoondise, now controls 60 percent of the market. The second largest company is Akropol, which controls 10 percent of the market.

The ESC previously held about 8 percent, while Securitas controlled 3 percent of the market. The total turnover of the Estonian security service market is about 600 million kroons.

“Together we can cover 75 percent of the country with our services,” said Brisere. The new entity has a staff of about 450 people and about 1,000 clients.

The ESC was established in 1991 and is one of the oldest security companies in Estonia. Together with other security companies, the ESC started an Estonian Security Companies Union in Estonia, which celebrates its fifth anniversary this year.

William Cronenberg, a member of the American Society for Industrial Security, said the Estonian security market has developed quickly over the past five years. The Latvian market, he noted, is at least five years behind its northern Baltic neighbor.

“The Estonian security system is something opposite to the American system,” Cronenberg said. “Here, security officers drive around and sometimes exercise police functions. It is good if we can use the services through private companies if police are unable to do it.”

Source: http://www.baltictimes.com/news/articles/3182/

New century, new spa

The Baltic Times, TALLINN
By Kairi Kurm
Oct 22, 1998

Come the 21st century, Estonians may start spending their holidays in Estonia rather than in some warm, southern country. That, says Toomas Niinemae, CEO of the Kristiine Kinnisvara real estate company, is because his company will open a spa/hotel in the seaside resort town of Parnu that should be operating shortly after the turn of the century.

The spa would be the only one of its kind in the Baltic countries, Niinemae said, and would be perfectly situated in Parnu, referred to by locals as the summer capital of Estonia. The city has 55,000 permanent residents, but the number swells to more than twice that when the weather gets warm.

Toomas Undusk, project manager at Kristiine Hotels, which along with Kristiine Kinnisvara, is a subsidiary of Kristiine Center, said this kind of recreational zone, which also accommodates a health care facility and a hotel, will be active throughout the year. The complex will be geared toward people from all three Baltic states and will be similar to spa/swimming complexes in Finland. The Finnish resorts are popular among Russians, another group Undusk says Kristiine Hotels would like to attract.

“Why shouldn’t they like to visit our country for a change?” said Undusk.

The 132-hectare development area will include a service center, a golf course, a fitness center, an athletics field and a stretch of sandy beach. The golf course will be only the second of its kind in Estonia.

The price of the project is not set, but a spa/hotel on a 3.5 hectare tract of land should run about 150 million kroons ($11.5 million), said real estate manager Marek Maasik.

Source: http://www.baltictimes.com/news/articles/3176/

A glance at Baltic real estate

The Baltic Times, TALLINN
By Kairi Kurm
Oct 22, 1998

Ober Haus, a registered real estate company in Estonia, is the only real estate agency active in all three Baltic states. Kairi Kurm caught up with partial owner Paul Oberschneider to talk about doing business in Estonia, Latvia and Lithuania.

Is competition severe on the real estate market?

I do not pay too much attention to the competition. I do what I think needs to be done. I try to do a very good job and I try to put out a very good product. Everybody is welcome to be in this business. One certainly needs to be aware of what the competitor is doing, but I do not benchmark myself or try to compete with them. Today, the competition is more severe than it was four years ago. Back then, the competition was more insider-based. As more money has been invested into this country, the market has become more transparent, and transparency is good for the market, as is competition.

We select certain markets that we feel are interesting, such as retail, hotel and office development and start building and investing if there is demand and the returns are right. If the competition creates an oversupply of building, then we’re obviously waiting. For example, when we had started apartments and residential development in the Old Town and competitors came, most with much more money that we had at that time, we shifted our focus.
Are real estate prices similar in the three Baltic states?

The prices in Latvia and Estonia are relatively the same. They tend to be a little bit higher in Latvia right now because Latvia is not going through the same credit and liquidity crisis that Estonia has been painfully aware of over the last year. There is also a lack of real supply in Latvia and the prices tend to stay a bit artificially inflated, whereas in Estonia, there has been sufficient supply for the last three years.

Prices in Riga will stabilize as more product comes to market. The Estonian market tends to be a little more efficient and it has been ahead of the Latvian market for a number of years both in terms of bank financing and investor interest. But I think that curve is changing significantly, and within a short period of time, a shift will take place, where more focus, attention and opportunity will be in Riga than Tallinn. The Latvian market is bigger, a bit like a center, and certainly has great potential.
Has Ober Haus thought of merging with another real estate company?

There is no reason to merge with another company in a service business unless that company brings something to the table that you do not have. Why should I pay somebody for an asset when that asset is people? I can always hire people.

We are always looking for good people and lately we brought a package of brokers over from one of our competitors. But for two similar companies doing the same business to merge just indicates that both companies are having trouble. Together, this would mean double trouble. That is not the answer for solving problems.

Alternatively, we have restructured some of our salary programs to meet the slow down of the market. We are putting people on full commission.
Pindi Real Estate analysts said that Estonians take a remarkably higher commission rate than agents abroad. Is this rational?

Commission rates in Europe and the United Kingdom are about 2 percent per transaction cost, which is significantly lower than here. However, those are marketplaces with efficient financing structures where everything works mechanically.

Obviously the cost of that transaction increases as things take longer to do and the market becomes more difficult. As the cost of running the business is relatively the same and the prices here are one-fifth or one-eighth of what they are in Western Europe, the commission rate has to be adjusted in order to operate.
Are real estate prices going to decline during the market slow-down?

They actually have no choice but to decline. What you are going to see is investors making much lower bids for property than before. In order to conduct those transactions, some have to lower prices. The decline of prime property could be no more than 5 percent. In outlying areas of lower grade, the prices of that property could decline 20 to 30 percent in some cases.

Source: http://www.baltictimes.com/news/articles/3175/

Fate unknown for eight Estonian funds

The Baltic Times, TALLINN
By Kairi Kurm
Oct 15, 1998

The Securities Inspectorate ruled eight investment funds should suspend trading until Oct. 16 since none were worth the required minimum net value of 5 million kroons ($383,000).

The inspectorate’s decision, made Oct. 8, requires these eight funds to freeze all trading: Hansa Russian Growth Fund, Hoiupank Russian Investment Fund, Talinvest Interest Fund, Talinvest Growth Fund, Baltic Index Fund, Centum, Tallinna Pank Talse Index Fund and Tallinna Pank East European Fund.

Each fund’s management now must decide whether to liquidate the fund and divide the property or to continue operations by increasing the net value.

Marek Magi, head of the Securities Inspectorate, said the funds were managed well and the objective now is to make them work normally. Out of 23 Estonian funds, five are under the liquidation process.

Magi explained that the funds did not meet the net value requirement because the Russian market lost liquidity and some shares are valued at 0 kroons. Magi said the suspension is necessary to ensure that all shareholders are in equal position in case a fund will be liquidated.

The Securities Inspectorate applied the moratorium principle, according to which the fund continues its activities, buying and selling shares, but clients cannot take out their money for a period of time.

“If we’d started talking about low liquidity before suspension, clients would have started taking their money out. The company would have sold the liquid shares and paid the share price to those who heard about the news first. Then the fund would have had troubles with selling the less liquid shares and paying out the share price to other shareholders at a proper time,” Magi said. “The suspension gives them an equal position and the fund managers can search for the money to pay out the shares or increase liquidity.”

Shareholders also have the opportunity to sell their shares in one fund and buy shares in another fund on the same conditions.

Magi said it’s in a shareholder’s interest to do so, especially in the case of Hansa Russian Growth Fund and Hoiupank Russian Investment Fund, which have the same investment strategy and one fund manager. Both companies belong to Hansapank Assets Management.

“Hansapank Assets Management is interested in dropping one fund and increasing the other fund with clients of the liquidated fund. If a client is not interested, he would get his money,” said Magi.

“It is not reasonable to manage two similar funds, but merger in this case is not permitted,” said Vadim Ognestsikov, the fund manager of Hansa Russian Growth Fund and Hoiupank Russian Investment Fund.

The net value of Hansa Russian Growth Fund is 4.5 million kroons and Hoiupank Russian Investment Fund is 3.9 million kroons. The Hansa fund’s share, which cost 1,000 kroons a year ago, is now worth 88 kroons. The net value of Hoiupank Russia Growth Fund’s share was 1,000 kroons in August 1996, but now it has fallen to 80 kroons.

According to the law the funds which do not meet the 5 million kroon requirement will apparently pass under the depot bank’s administration as of Oct. 16.

Magi said the funds would have to find a new manager, but expressed doubt any corporation would agree to manage these funds.

“If a fund does not find a manager, the inspectorate would appoint someone to liquidate it,” said Magi.

Uhispanga Fondid, one of the eight managers in Estonia, might overtake Tallinna Pank’s Talse Index and East European funds. After Uhispank and Tallinna Pank merged, some subsidiaries continued working separately. Now the Uhispank Group’s company, Uhispanga Fondid, might shelter troubled Tallinna Pank funds.

Estib-Talinvest Assets Management is interested in keeping its Interest and Growth funds. Jan Andresoo, Estib-Talinvest’s development consultant, said three Estib-Talinvest Assets Management funds, including Share Fund, will be divided among its owners according to the previous plan and clients will then increase the net value.

Andresoo said Talinvest Growth Fund needs only 500,000 kroons to meet the net value requirement. Eesti Investeerimispank will take over Talinvest Growth Fund, and Talinvest will get Talinvest Share Fund and Interest Fund.

Source: http://www.baltictimes.com/news/articles/3134/

Wanted: investor who likes milk

The Baltic Times, TALLINN
By Kairi Kurm
Oct 15, 1998

The Tallinna Piimatoostus dairy is on the lookout for a strategic foreign investor, which it says is essential to increase its competitiveness on the European market.

That was the message the dairy passed to Uhispank when it authorized the bank to find a buyer for 75 percent of its shares.

These shares are owned by the holding company Epeks, and the rest of the dairy’s 80 million kroon ($6.1 million) share capital belongs to different funds.

Estonia’s largest dairy Uhinenud Meierei is eyeing the sale of its competitor’s shares and is ready to swallow the stake before a foreign investor gets its hands on it, according to recent media reports.

Tallinna Piimatoostus is the second largest dairy controlling about 18 percent of the local market and is the market leader in yogurts, curd creams and fresh creams.

Unlike other Estonian dairies, Tallinna Piimatoostus is less connected to the Russian market. It sells most of its products on the domestic market. Only 15 percent of the company’s 500 million kroon turnover comes form sales in Russia.

“Uhinenud Meiereid has not made any concrete proposals to Tallinna Piimatoostus. There is not enough capital in Estonia, to make the necessary investments into Tallinna Piimatoostus,” said Raul Kalev, spokesman at ETFC, a managing group that owns Tallinna Piimatoostus. Foreign investments into Estonian companies should be part of the natural progress and part of the dairy’s effective development strategy, said Kalev.

Source: http://www.baltictimes.com/news/articles/3131/

Advertising market on the rise

The Baltic Times, TALLINN
By Kairi Kurm
Oct 15, 1998

The recent International Advertising Association’s (IAA) survey evaluated the Estonian advertising sector as a remarkably healthy industry, which makes a significant contribution to the overall economy.

The advertising sector’s turnover of 2.9 billion kroons ($222 million) exceeds two times that of the fishing industry, matches that of the forestry industry and accounts for 1 percent of the GDP.

With 1997 revenues of 585 million kroons, it is estimated that the advertising industry generated around 2.3 billion kroons of economic activity and tax revenues of 122 million kroons.

The advertising industry gives work to 3,250 people in advertising agencies and media companies and about 2,500 jobs indirectly in other companies.

Estonian advertising growth has been the highest in the world since the early 1990s. Since 1994, advertising expenditures have increased five times.

However, the Estonian advertising industry is still relatively small by international standards and has plenty of room to grow, the IAA reports. Compared to advertising expenditures per capita, it is still less than half as developed as the industry in the Czech Republic and less than one-third as developed as the advertising industry in Hungary.

Advertisement is a very important source of revenue for the press and TV, ensuring about one-third of their total revenues. Newspapers are by far the largest advertising vehicles in Estonia, accounting for 50 percent of all advertising expenditure in the country. TV is the second most important target for advertisers, accounting for 26 percent of expenditures. Radio, magazines and outdoor advertisement each get about 8 percent of all expenditures.

According to the IAA, outdoor advertising has been one of the main growth areas in the Estonian advertisement market, while the cinema sector is relatively undeveloped.

According to the Baltic Media Book, health and beauty care, food and electrical appliance companies are the largest advertisers, accounting for almost half of Estonian advertising expenditures.

A diversified consumer goods company, Procter & Gamble has been the largest Estonian advertiser in the period of 1994 – 1996, while Dirol, Stimorol and Marlboro were the most advertised brands during the same period.

Among the local top most advertised were Eesti Loto, Eesti Tubakas, and telephone companies Q-GSM, EMT and Radiolinja.

Source: http://www.baltictimes.com/news/articles/3130/

Swedbank gets half of Hansapank shares

The Baltic Times, TALLINN
By Kairi Kurm
Oct 08, 1998

Swedbank, the third largest bank in Sweden, announced it will buy Hansapank shares currently held by Skandinaviska Enskilda Banken (SEB), a move that will increase Swedbank’s stake in the Estonian institution to 49 percent.

Swedbank currently owns about one-third of Hansapank’s shares, and the SEB has a 19 percent stake in the largest Baltic bank. The SEB has been competing with Swedbank in increasing its stake in Hansapank but hankered after quick money.

The SEB told The Financial Times that it would get about 200 million Swedish kroons ($ 24 million) after it sells off its stake to Swedbank.

Swedbank’s share in Hansapank may jump over 50 percent as a result of a planned rights issue of Hansapank shares. Swedbank said it would guarantee the issue of 14 million shares at a price of 100 kroons ($7) a piece. Hansapank’s shareholders may buy one share for every four they own, but if they fail to subscribe the Swedish bank will automatically assume all shares at this price.

The Bank of Estonia has already approved Swedbank’s increase of its Hansapank’s share to 49 percent, but it will have to turn to the central bank for further permission if it plans to raise its stake above 50 percent.

Source: http://www.baltictimes.com/news/articles/3089/