Tallinn bourse joins Helsinki trading system

The Baltic Times, TALLINN
By Kairi Kurm
Feb 28, 2002

Estonia became the first country in Eastern Europe to merge with a Western European bourse when the Tallinn Stock Exchange opened for business on Feb. 25 as a partner with the Helsinki Stock Exchange.

The merger allows traders from around the world to buy and sell Tallinn shares through the Helsinki exchange.

The most visible change in the Tallinn system in the first hours of trading under the new system was that stocks were quoted in euros rather than kroons.

The Helsinki Stock Exchange bought a 62 percent share in the Tallinn bourse last year. The Tallinn Stock Exchange had to revamp its trading systems before physically merging with the Helsinki exchange.

Officials from the Tallinn exchange predict the link up could liven up Tallinn’s flagging stock market, where no more than 5,000 investors own shares in any single company.

Some traders predicted stock prices could rise by at least 20 percent by year’s end as European investors find they have easier access to the exchange.

“We want to create an environment where all investors, whether they are Finnish, Swedish, London-based, private or institutional, will feel comfortable in and want to come to find new opportunities,” said Gert Tiivas, chief executive of what will now be known as HEX Tallinn.

“We are offering direct, cheap, efficient and easy access to trading without being physically here and without having to learn specific Estonian rules or peculiarities.”

Estonia’s Prime Minister Siim Kallas also hailed the move.

“No doubt this will encourage investment flows and both stock exchanges will benefit from it,” said Kallas.

“Estonia’s stock exchange grew rapidly up until 1997, but this was followed by a decline and disappointment. So the idea of merging two stock exchanges looks very promising.”

The new HEX Tallinn group consists of Tallinn Stock Exchange and the Estonian central securities depository Eesti Vaartpaberikeskus.

HEX Tallinn should also receive a boost as a result of ongoing pension reforms which will result in pension contributions increasingly being spent on shares.

The Helsinki exchange is also discussing cooperation with Latvia’s and Lithuania’s stock exchanges.

Helsinki Stocke Exchange CEO Jukka Ruuska said talks were continuing with the privately owned Riga Stock Exchange and a merger could be agreed on by next year.

A merger with the Lithuanian bourse could prove more complicated as it is state-owned.

Fully integrating the Helsinki and Tallinn trading systems will not be possible until Estonia adopts the euro. In the mean time Helsinki’s traders have to register with the Tallinn exchange.

But Finland’s recent adoption of the euro should itself give Tallinn a boost, said Mattias Mustonen, head of retail trading at Hansapank.

So far four of the 40 active HEX members have already expressed willingness to trade in Tallinn-listed securities. Mandatum Stockbrokers and Nordea Securities have already won approval to trade and Evli Bank and Credit Suisse First Boston Europe are expected to follow shortly.

About a third of HEX members are overseas firms with offices in Helsinki.

“We have a large number of clients who might be interested in buying Tallinn Stock Exchange shares,” said Marko Kauppi, a broker at Mandatum Stockbrokers. “We saw it as natural that we should participate, and it was very easy to do because we have the same trading system.”

Another five of Helsinki’s members are likely to sign up with the Tallinn exchange by year’s end, predicted Kauppi.

The Tallinn exchange experienced a 4.66 percent year-on-year growth in 2001 and a turnover of 4.1 billion kroons ($227.77 million). Helsinki’s turnover is about 1,000 times bigger, reaching 200 billion euros last year.

The average daily trade turnover on the Helsinki Stock Exchange last year was 814 million euros.

Twenty-five securities were traded on the Tallinn exchange when it opened in 1996, a figure which rose to 38 in 1997 but has since fallen to 22 today.

Last year more than half of trading in Tallinn was in Hansapank shares, 27 percent in Eesti Telekom shares and 10 percent in Norma shares.

Hansapank took a 55 percent share of trading, followed by Uhispank with 18 percent, Suprema 16 percent and Trigon 7 percent.

Estonian capital accounts for just 23 percent of the holdings in listed securities while Swedes have a 45 percent share and British, U.S. and Finnish investors each account for about 7 percent of all holdings.
Source: http://www.baltictimes.com/news/articles/6078/

Estonia and Finland weigh gas pipeline

The Baltic Times, TALLINN
By Kairi Kurm
Feb 28, 2002

The private gas utility Eesti Gaas is in preliminary talks with Finnish natural gas trader Gasum over construction of an underwater natural gas pipeline between Estonia and Finland which would reduce Estonian dependence on Russian gas.

News of the talks emerged during a visit to Tallinn by Norwegian Prime Minister Kjell Bondevik on Feb. 20.

Bondevik emphasized Norway’s interest in the development of a Baltic Sea region energy network and in increasing Norwegian gas exports, according to the government’s press office.

“It is too early to speculate about the possible location, shareholding or the productivity of the project, because it is just on the idea level,” said Urmas Kuusik, an Eesti Gaas adviser.

Viability studies could begin next year if the exploratory talks prove positive, said Eesti Gaas’s President Aarne Saar.

Construction would take about a year and begin in 2004 at the earliest, Antero Jannes, Gasum’s managing director told the newspaper Kauppalehti.

The capacity of the pipeline would be about 1 billion cubic meters annually, which is the amount consumed by Estonia in a year.

Under a contract which expires in 2005 Estonia currently imports all of its gas supplies via a pipeline from Russia.

Eesti Gaas and Gasum have similar ownership structures. Gasum is a quarter owned by Fortum of Finland, a quarter by Russia’s Gazprom, 24 percent by the Finnish state and 30 percent by Ruhrgas of Germany.

Privatized in 1997, 37 percent of Eesti Gaas belongs to Gazprom, 32 percent to Ruhrgas, 18 percent to Fortum and 9 percent to Latvia’s Itera, a subsidiary of Russia’s Itera.

In 2000 Eesti Gaas sold 825 cubic meters of natural gas and netted a 243 million kroon ($ 13.5 million) profit on a 948 million kroon turnover. Most of the heat for Estonia’s district heating stations comes from natural gas.
Source: http://www.baltictimes.com/news/articles/6088/

Counterfeit clothing goes to needy

The Baltic Times, TALLINN
By Kairi Kurm
Feb 21, 2002

The first of many parcels of counterfeit track suits and sports shoes were sent to social care institutions at the beginning of February after the brand labels had been removed at a women’s prison.”Destroying certain clothes or footwear is more costly than removing their labels,” said Andres Aavik, attorney at law at Heta Law Offices, who represents international brands such as Adidas, Reebok, Timberland, Gant, Moscino and Harley Davidson, which are supporting the initiative.

“I haven’t heard of such a practice abroad. Estonia is a country with a lot of poor people. Why should these goods be thrown away if we can help social care institutions instead?”

Until last September, when amendments to the trademark law and the new law on prohibiting the export and import of pirated and counterfeited goods came into effect, clothes and footwear with fake labels seized on the border were destroyed along with other pirated and counterfeited goods.

A total of 1,552 clothing and footwear items have so far been sent to Harku women’s prison to have their labels removed, of which 387 items will be destroyed because the labels cannot be removed, said customs service spokesman Aivar Pau.

Most of the goods bear a Reebok or Adidas trademark and have been seized since 1999. According to Pau 9,042 pirated items including track suits, sports shoes, jeans, hats and shoes are bound for 30 public social care institutions.

“Why burn or destroy them if they can be handed out to the needy?” said Mare Sadem, accountant at a retirement home in Kehtna due to receive one of the first consignments.

“We like the idea very much.”

Like other retired people in Estonia residents at the home cannot save much from their monthly incomes to buy new clothes, she said.

Riina Sippol, head of the Keila Daily Welfare Center, which helps children from low income families and people with mental disabilities, was very pleased with the consignment of 34 pairs of track suits and sports shoes the center had received.

“The footwear is nice and smells fine,” said Sippol.

“The clothes look like those sold at Kadaka marketplace and you can see some traces of the label removal – I hope we can apply a second time.”

According to Aavik several European Union officials have praised Estonia’s initiative on counterfeit clothes and have suggested the relevant parts of the accession chapter regulating intellectual property should not be harmonized with EU legislation.

“Estonia has very good legislation and proceedings against clothing counterfeiters are very simple. Customs authorities or the police seize the goods, asks for an expert opinion and sue the defendant. But in other countries including Latvia and Lithuania the customs or the police discover the counterfeited goods and the owner of the trademark has to turn to the court, so the proceedings lasts longer and are more complicated.”

Traders caught with counterfeit goods have to pay a fine three times the value of the goods seized, while those caught by the police have to pay between 50,000 kroons ($ 2,778) and 100,000 kroons. Private persons found trading counterfeit goods can be fined up to 2,000 kroons.

In 1999 customs authorities seized 5,659 items bearing the Adidas label, in 2000 the figure was 8,793 but last year saw a down turn, with only 3,200 such items seized as of Dec. 1.

Importers of counterfeited goods have now resorted to using trademarks of companies which do not have representatives in Estonia such as Fubu and Fishbone, said Aavik.

Most counterfeited goods sold in Estonia are imported from Lithuania, he said.

Source: http://www.baltictimes.com/news/articles/6057/

Norwegians regain shipping company

The Baltic Times, TALLINN
By Kairi Kurm
Feb 21, 2002

The Norwegian shipping company Tschudi & Eitzen became sole owner of the Estonian shipping company Eesti Merelaevandus at a controversial public tender in which it was the only bidder.

Tschudi & Eitzen already held a majority stake in ESCO Holding, owner of the shipping company before the tender, but decided to invest in the company only after repurchasing it at a public tender and shaking off claims by creditors for 300 million kroons ($18 million).

“We are very happy now to be in a position to work concretely and efficiently on important issues which need to be addressed in the company,” said Axel C. Eitzen, chairman of the board and part owner of Tschudi & Eitzen.

“Until now almost all management time had been spent looking back and finding short term solutions to problems. We can now address the future and I hope that we will indeed be successful in bringing stability and later profitability as shipowners, commercial line operators, shipmanagers and crew providers.”

The price of the deal has not been revealed, although the company was on offer for sale between Jan. 28 and Feb. 6 at a minimum price of $1.5 million, which experts said was around one-tenth of the nominal value of the shares owned by ESCO Holding.

According to Olev Schultz, who sits on the councils of ESCO and ESCO Holding, the starting price was set in accordance with a thorough analysis of the company’s business activities and its assets as well as the general state of the shipping industry, the size of its equity and ESCO’s general prospects.

“There were companies from Estonia and abroad interested in the Estonian shipping company. I don’t know why they gave up, but I can imagine why,” he said.

Eitzen earlier told The Baltic Times that Tschudi and Eitzen did not want to invest in the company because any investments would be taken by the creditors.

As a condition of purchase Tschudi and Eitzen is obliged to invest $3 million in ESCO.

ESCO Holding’s biggest creditors are Uhispank with a 100 million kroon claim and the state with a 170 million kroon claim. The state’s claim is due to the company’s failure in 1999 to pay for a 15 percent stake in the company.

ESCO Holding then pledged 20 percent of its ESCO shares to the state as collatoral, which it would now like to sell to the new buyer with the state’s consent.

The price of this stake will reach some 5 million kroons if Tschudi & Eitzen is to pay a minimum price for the bid and will cover only 3 percent of the company’s debts.

Martina Prosa, head of the Finance Ministry’s loan department, said the state would take what was offered because the money received from the sales of shares was the only remaining source with which to satisfy creditors’ claims.

“We haven’t yet received a written offer for the 20 percent shares,” she said.

“It’s the management of ESCO Holding which has led the company to insolvency. If we don’t give them the 20 percent stake, the company may end up bankrupt. They need to have a sole owner in order to receive a loan from a bank and continue their operations.”

The Estonian business daily Aripaev accused the Norwegian company of asset-stripping, blaming it for selling over half of the fleet since the start of the privatization, taking an illegal loan from ESCO and of a number of shady transactions with Tschudi & Eitzen.

The management of Tschudi & Eitzen rejected these accusations last June, claiming that their lawyer had ensured the lawfulness of their actions and that most of the ships which had been sold were too old or incompatible with the company’s strategy.
Source: http://www.baltictimes.com/news/articles/6058/

Insolvent IT company leaves stock exchange

The Baltic Times, TALLINN
By Kairi Kurm
Feb 14, 2002

The only Internet related company listed on any of the Baltic stock exchanges, XXL.EE, has become insolvent and is to be delisted.

Stock exchange regulations stipulate the total market value of a listed company’s shares should be at least 10 million kroons ($ 600,000), but XXL.EE has a negative equity of 3 million kroons.

” XXL.EE is insolvent and will go bankrupt,” said Arho Anttila, chief executive of XXL.EE, ahead of the Feb. 23 delisting.

Soon after its foundation in 1990, the company, then known as Pennu Computer Technology, was the second largest assembler of PCs in the Baltics. With its well-known brand name XXL Digital, it also became a leading e-business consultancy. But it later hit financial difficulties.

Anttila attributed its failure to the downturn in the global high technology sector and to the poor management of its former majority shareholder, Alo Koop.

“The company is now taking a wait-and-see position,” he said.

“XXL’s subsidiaries in Latvia and Lithuania and XXL Arisusteemid (XXL Business Systems) are independent from XXL.EE and will continue, only the structure of ownership should change.”

In the first nine months of 2001 the company made a 4.7 million kroon loss on a 5.1 million kroon turnover.

At the end of that period it had accumulated total losses of 43 million kroons and its liabilities were over 20 million kroons.

The company now owes over 8 million kroons to Nordea Bank and 2 million kroons to the tax revenue service, said Anttila.

He attributed the failure of the company’s efforts to find new investors to an ongoing dispute with the tax authorities over an alleged export fraud in 1998.

“XXL.EE is not planning to look for additional funding since the situation with the tax authorities is unclear and the risks caused by this possible loss would be too huge,” said Anttila.

Rescuing XXL.EE is impossible, commented Allan Martinson, chairman of the biggest IT company in the Baltics, Microlink.

“XXL.EE has inherited huge problems from the past. It would be easier to establish a new company than boost the old,” said Martinson.

The company’s decline began as soon as it appeared on the stock exchange in 1996 and started offering beautified balance sheets to its shareholders, said Aivo Kangus, capital market strategist at Eesti Uhispank.

“Although the company has gone through a lot of restructuring, it lacks a clear concept of where to receive a positive cash flow.

“History shows that if they find additional funding they will spend this in half a year and the owners’ equity will turn negative again,” he said.

The company gained new strategic owners and management in late 1998, and was turned from a hardware company into a Web service company in less than two years.

It acquired Web agencies in Estonia, Latvia and Lithuania and started a portal business in 1999. The Estonian portal operations were sold to the Finnish-based Aktivist Network in 2000.

The company has 171 shareholders, 56 percent of whom are the clients of Nordea Bank. About one third of the shares belong to two former employees of Cresco Baltic Investments, Pennu Computer Technology’s former partner.

Source: http://www.baltictimes.com/news/articles/6023/

Row erupts over soccer stadium

The Baltic Times, TALLINN
By Kairi Kurm
Feb 14, 2002

Tallinn’s city government is launching an investigation into the construction of Estonia’s biggest soccer stadium, which city officials say has cost taxpayers millions of kroons that have yet to be accounted for.The 15,000-seat Lillekula Stadium is expected to cost 170 million kroons ($10 million) when completed and will be jointly owned by the city and soccer club FC Flora.

But officials are now questioning whether city funds should be financing what they say is essentially a private venture. And they’re asking questions about where the money has gone.

“It seems to me that we are dealing with a business project that belongs to one person or a small set of people that should not be sponsored by the city,” said Toomas Vitsut, deputy mayor of Tallinn’s city government. “The city should instead support sports facilities that are accessible to everybody. Supporting an elite project is not a city’s task.”

According to an agreement signed under former Mayor Juri Mois, the city was to pay 15 million kroons and receive a 16 percent share in a joint stock company that would own the stadium. The city also had the option of increasing its share to 27 percent.

But officials in the new administration say the city provided tens of millions of kroons more that were undocumented and have seemingly disappeared.

In addition, FC Flora delayed in forming a promised joint stock company. The company’s share capital will reportedly be only 10 million kroons, city officials charge.

“The whole process is very unclear at this point,” said Tallinn City Council Chairman Toivo Tootsen . “Where is this money? Where is this company? Why is its share capital only 10 million kroons, if the city alone has paid tens of millions of kroons? Why is the city’s share so small? We expect answers to these questions in a couple of weeks. Then we can decide what to do next.”

Under an existing agreement the city is supposed to receive an additional 1 percent increase in ownership in the stadium per day for each day FC Flora delays in forming the company past a Dec. 28, 2001 deadline.

In addition to the city’s contribution, FC Flora also received funding from the football organizations FIFA and UEFA.

FIFA has contributed 18 million kroons and UEFA 10 million.

Andri Hobemagi, acting head of FC Flora, said he hopes to work with the city to iron out misunderstandings surrounding the stadium’s construction.

He said the stadium was built not only for FC Flora, and it would host events beneficial to the city, including national team matches.

“Lillekula Stadium is not a business project, because it belongs to a sports club and a municipal (entity),” said Hobemagi. “Neither of these organizations aims to profit but is instead fulfilling a social demand. This is also the reason why we have until now not included any commercial funds in the project, which would place us in a situation where we’d have to think about profitability.”

But other Estonian football clubs have begun to complain that FC Flora is unfairly getting a taxpayer-subsidized stadium.

Viktor Levada, president of FC Levadia, said the city should have supported the construction of several smaller stadiums and halls rather than one expensive project. He believes the funds sent by the international football associations were meant for establishing a national stadium.

“Aivar Pohlak, the sole owner of FC Flora, used the support of the state, the city, FIFA and UEFA for establishing a personal stadium,” said Levada. “Only the team of FC Flora can train there. They even have their names marked on the seats everywhere. Our team has to train on (rundown) fields in the snow.”
Source: http://www.baltictimes.com/news/articles/6027/

Sixty years to catch up with Western Europe

The Baltic Times, TALLINN
By Kairi Kurm
Feb 07, 2002

It will take 50 to 60 years for Estonian pay levels to reach the European Union’s average, according to a new survey – and longer if the country remains outside the EU.

“Our calculations are based on the histories of less developed countries that have merged with the European Union and the history of Finland before it formed a joint economic region with Sweden after World War II,” said Jaanus Raim, one author of the report produced by the Estonian Institute for Future Studies.

The best pay can be found in sectors where international investors are competing, such as finance, information technology and transit, the study found.

“If you want to know which companies pay well, look at the companies where foreigners work,” said Hanno Lindpere, who heads the business consultation department at Pricewaterhouse Coopers Estonia.

The average salary in Estonia is currently 5,000 kroons ($300), or 18 percent of the EU average.

This compares with 0.45 percent of the average in 1992, when the kroon was introduced. Since then pay levels in Estonia have increased by 40 times.

But prices in Estonia have increased faster and are now 60 percent of the EU average. That figure will rise to 80 percent in 10 years if Estonia joins the EU and 75 percent if it does not, the survey found.

From being 1.8 percent of those in the EU in 1992, prices have increased by 30 times in the last 10 years.

According to the survey, salaries will double in 10 years to 36 percent of the EU average if Estonia joins the EU and will be 1.6 times higher, or 29 percent of the EU average if Estonia stays out.

“First, productivity has to grow,” said Raim. “Also the business climate and export opportunities should improve before we can expect a rise in income.”

Aku Sorainen, spokesman for the International Business Council of Estonia, echoed these comments.

“The competitiveness of society should improve,” said Sorainen. “With more training from foreign experts the value of employees will grow, and they will command better wages.”

One factor reducing the amount Estonians have to spend is the country’s comparatively high social taxes, which are needed to compensate for a lack of pension funds in the Soviet era.

The small pension reserves the Soviet state did have lost their value during monetary reforms in 1992.

As the number of foreign investors increases, competition for employees will force companies to raise salaries, said Raim.

The increased freedom to look elsewhere for work that will come with EU membership, will also increase pressure on employers, he said. Trade unions can also be expected to become more effective in their lobbying for pay increases.

On the other hand, Raim cautioned, foreigners are not always welcome abroad, especially in traditional jobs like shipping.

Lack of knowledge of a local language or customs can also come between migrant workers and success.

In a number of Estonian firms, particularly those engaged in software development, salary levels are already creeping up, with some experts now earning between 40,000 kroons and 50,000 kroons per month, according to Tiina Saar, product manager at the on-line recruitment company CV-Online.

“Estonia has a very small employment market and the demand for certain specialists can be very high,” said Sorainen “Wages here fluctuate more than in developed countries.

“An Estonian laborer in the countryside would make some 2,500 kroons a month, but a Finn 30,000 kroons so the difference is more than tenfold. But the difference between the wages of top managers is smaller. A top manager can make 100,000 kroons per month in Estonia and 200,000 kroons in Finland.”

Little confidence

But Estonians still suffer from a lack of confidence when it comes to demanding good salaries, she said.

“Some highly educated and well trained people with strong CVs are ready to work for a 7,000 kroon salary,” said Saar. “They see it as important to set their foot in the company first and demand a pay rise later.”

Those working in the financial sector receive 50 percent of what is common in Finland, said Raim.

“I believe that some of our managers may even outstrip Finnish managers with their incomes,” he added. “This shows that the Estonian financial sector is highly developed thanks to foreign investment. I don’t think their wages will continue to grow for much longer.”

But those earning big salaries are a very small proportion of the population.

Only 0.4 percent of employees earn over 30,000 kroons a month, according to Mare Kusma of the state statistics office.

Consumer goods such as clothes and household products are already 70 percent of the EU price level in Estonia. But entertainment, health care, education and foodstuffs remain relatively cheap.

Real estate prices are also quite low, especially outside Tallinn. A house in Tallinn would cost 40 percent of what a similar house in Finland would cost, said Raim.
Source: http://www.baltictimes.com/news/articles/5996/

Convicted banker released after big bail payment

The Baltic Times, TALLINN
By Kairi Kurm
Feb 07, 2002

Once a respected manager and the majority shareholder of a banking group, Andres Bergmann has been released from pretrial custody after his parents paid 1 million kroons ($60,000) in bail.Bergmann, who is 42 and has a one-year-old child, promised not to hinder investigations into the bankruptcy of ERA Bank, which collapsed in 1999 owing millions of kroons.

He was taken into custody on Dec. 13 last year for fabricating documents during the investigation, and was told he would stay in prison until the end of the preliminary investigation on March 3, 2002.

“The size of the bail is extremely small compared to the 190 million kroon loss he caused by his transactions,” said Kaire Hanilene, prosecutor at the Tartu prosecutor’s office.

“It is a ridiculously small bail sum.”

Bergmann could be charged with fraud, plunder, money laundering, abuse of his professional position and forgery in connection with his management of ERA Bank and its subsidiaries Polaris Elu (Polaris Life) and Polaris Vara (Polaris Assets), said Indrek Raudjalg, spokesman for the state police department.

Money laundering, the most serious of these crimes, carries a 10-year prison sentence.

Bergmann, who is of Estonian and German origin, was met at the prison gates by his parents, who are retired and live in Germany.

“The bail sum is not a huge amount for the middle-class citizens of Germany. German pensioners earn more than the prime minister of Estonia,” said his lawyer, Tarmo Pilv.

Arguing that he should be kept in custody, the prosecutor referred to promises Bergmann had made earlier not to interfere with the investigation, promises they said he had later broken.

Further investigation

Bergmann was first arrested in March 2000, when the police tried to hold him and his associates throughout a six-month investigation into possible large scale embezzlement.

On that occasion a court rejected the police application and he was released.

Besides Bergmann, seven others are under investigation for fraud, most of them former employees of ERA Bank.

Bergmann’s lawyer protested his client’s innocence.

“Unfortunately people of the second and third rank get to court in Estonia. The rest do not,” he said.

“If Bergmann is guilty, then those who are blaming him, including some government institutions, are guilty too. ERA Bank did not disappear because of its economic situation. A certain group of people did not want this bank.”

In the wake of the Russian crisis the state decided in 1998 to save Forekspank, a competitor, from collapse and let EVEA Bank, which was one-third owned by ERA, go bankrupt.

Clients panicked and withdrew their money.

Only after the court process is over will the size of the final claim against Bergmann become evident, said Pilv.

“Even the prosecutor does not know the total sum of the claims – the preliminary charge was over 200 million kroons, but this fell to 100 million kroons right after a judicial assessment was made.”

Bergmann is the second Estonian banker to be imprisoned after Malle Eenmaa, the former head of Maapank, who was sentenced to 18 months in prison for corruption.

Maapank went into bankrupt in 1998 as a result of huge losses incurred on the stock market.
Source: http://www.baltictimes.com/news/articles/5998/