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Is demand to invest in Slovenia higher or lower compared to previous years? Are investors seeking a higher return?

Demand for Slovenian assets is increasing, however there is still room for expansion in FDIs. 2017 was, for Slovenia's size, quite good and we perceive that there is definitely ongoing demand. There is a shift in demand for DUTB's assets. At the beginning, interest was mostly for loans and operating enterprises, and less so for real estate. Now demand for the various types of real estate is also increasing.

What has been the Return on Investment in different asset classes?

I cannot, as yet, fully disclose as we are in the process of preparing the annual accounts for last year, but from the preliminary results we can say at the operating income level, which means income realised on transactions, 2017 was an outstanding year. DUTB was highly profitable in all asset classes, i.e. loans, equity and real estate.

Are there perhaps other facts and figures that can be shared for last year?

Last year we generated EUR 443m of inflows, which is 22 percent of the company's cumulative transfered assets. Since the commencement of DUTB's operations, aggregate realisation in 4 years is almost 65 percent of total transferred, merged and acquired assets.

Was the return greater than expected?

The return is quite an interesting issue here because DUTB had an initial fair valuation of all assets that were transferred, and the (negative) difference was charged against capital. On average, the transfers were at higher value than the fair value. So the capital partially covered the original losses, and from the operations we ensure recovery of investments by the taxpayers through two streams: the profit stream which is above expectations if looked at as the cumulative average annual return (according to the last public disclosure it was 14% p.a. on average from the beginning until 30 June 2017); and the interest premium we were paying on the bonds to the state-owned banks plus the guarantee fee which we pay to the budget. In the initial years the latter were a significant burden on DUTB's profitability, but it was an income for public sector entities. If you take into account both streams, we have already returned in four years of our operation more than half of the capital that was provided to DUTB.

Regarding Slovenia's prevailing real estate price cycle which is quite high, do you prefer to sell real estate fast or do you wait?

We have an assessment of the potential value for each piece of real estate. If we exclude Ljubljana and its surroundings and the coast, the price level of real estate in Slovenia is still below its peak 10 years ago. However, a number of transactions in residential real estate are already higher than before the crisis which means that we hopefully will not have bubble of comparable size and it will not burst as it did last time. Unfinished or almost finished buildings such as Nokturno or Celovški dvori, and for attractive greenfield plots, we are looking for joint venture partners, and we have calculation for the price level of each. As for commercial real estate, the market has not yet fully revived, there has been a further significant drop in the prices and not many transactions even in 2016. However, our experience in the last two years has been quite different from the general trend - there is rising interest, supported by a lot of targeted marketing from our side, and we achieved higher than expected prices and volumes in sales to local and foreign investors. There is vivid interest for lower value assets from local investors, nevertheless as we go up on the size-ladder the proportion of foreign investors share is higher.

Geographically, the majority of investor interest comes from Europe. With higher interest rate forecasts, how would the individual asset classes be impacted?

It is extremely hard to predict because if you have a fixed return on an asset and the interest rates go up, then the relative return on alternative investment shrinks and the price drops in a text-book case. However, the value of our assets could be affected differently by the market, especially because we are talking about exposures to operating companies, real estate that is in the production sector, etc., where the decisive value driving factor is the business story of the particular asset. Additionally, we do not expect higher interest rates in the next two years.

Do you expect any other equity positions in your portfolio in 2018?

Not many because of the manner how we acquire equity positions. One way is when equity is pledged as collateral for our loans - in that respect yes, there will be some transactions. The other way is debt to equity conversion, where there is a wipe-out of original owners and then the conversion of loans. We have only a couple of such processes in the making which we will finish soon and there are still cases where further financial restructuring is needed, but a very limited number, since in vast majority of the viable cases the implemented restructurings are already bringing positive results.