Faggian and Soldatić: The Imaginative Controllers of the Puljanka Network

The State Attorney’s Office is considering the privatization of Istra d.d., the largest trading company in Pula, which is the latest character in the complicated story of ownership entanglement of Pula’s companies Puljanka and Brionka and Zagreb’s Termotehnika.

Written by: Matilda Bačelić and Dragana Radusinović

Who actually bought Istra d.d. from the Croatian Privatization Fund is one of the most intriguing questions in domestic business, as the simple answer – Puljanka d.d., its current majority owner – does not provide the full picture. While the privatization of the largest trading company in Pula, known to Istrians as Istra veletrgovačko, is mentioned in the context of the Maestro affair and the Deputy Prime Minister Polančec being accused of favoring Puljanka and enabling it to buy Istra and recapitalize it with Puljanka’s real estate, both companies are preparing for a general assembly on September 27, where the controversial recapitalization of real estate should be voted on.

In the meantime, an investigation by the State Attorney’s Office is not excluded. County State Attorney Vlado Sirotić says that certain aspects related to the privatization of the trading company Istra are being considered in the State Attorney’s Office. This company is the fourth and youngest member of what is affectionately called the ‘Puljanka family’ in Pula and is part of the story of complicated ownership entanglement of Pula’s Puljanka and Brionka and Zagreb’s Termotehnika. Due to the ownership Gordian knot, no serious market analyst wants to analyze the business, let alone assess the potential of the companies and the value of their shares, including Kristijan Floričić, the CEO of Aureus Invest and a shareholder of Istra and Brionka.

Building a Small Pula Empire

In simplified terms, the Puljanka group is managed and its business is controlled by Pula entrepreneurs Albert Faggian and Karlo Soldatić. Along with them, several names are omnipresent in the management, supervisory boards, and among the shareholders of the four companies, and what they fear the most is the obligation to make a takeover bid. That is precisely why the four companies are not formally part of one group; their minority stakes are intertwined, they formally operate independently in the market, but de facto they do business together, whereby they lend each other affiliated companies, trade real estate among themselves, and build a small local empire in the sectors of food retail, mixed goods trading, bakery production, and, of course, real estate. Experts in commercial law warn that this could be a classic way of taking over companies without investing fresh capital, but thanks to the Croatian judiciary, this does not necessarily have to be sanctioned.

– Puljanka, Brionka, and Istra operate within an informal, interest-related group. The companies are intentionally intertwined to support each other. We strive to behave in the most economically beneficial way – explained Albert Faggian, adding that they are currently not considering formal legal connections of this group of companies and bringing all companies and their subsidiaries under one roof. The duo Faggian – Soldatić, who will be described in Pula as ‘imaginative entrepreneurs’, control not only the management and supervisory boards but also the votes of the shareholders’ assemblies. Therefore, only investors on the stock exchange are in great doubt, as due to the strange interconnection of the companies, it is impossible to assess which company to actually invest in.

When it comes to the obligation to make a takeover bid, the so-called red zone was entered three years ago by Brionka d.d., its CEO Karlo Soldatić, and the Anić family, for whom Hanfa stated in June this year that they act together and at one point in 2004 controlled more than 25 percent of Brionka d.d. There was, of course, no offer, the shareholder structure has since changed, and Hanfa reports that the procedure is ongoing. Certain ambiguities regarding ownership of Brionka arise from the company Puljanka – Brionka d.o.o., one of the most interesting companies in the group. It could even be argued that it is a parent company if a difficult-to-explain ownership turnaround had not occurred last January. Puljanka – Brionka d.o.o. was established by Puljanka d.o.o. in 1998, and the following year it transferred 50 percent of the ownership stake in the company to Brionka d.d.

The co-ownership lasted seven years, until last January when Puljanka transferred the remaining 50 percent of Puljanka – Brionka d.o.o. to Brionka, a company that received a supervisory board six months ago. Due to these ownership changes, Brionka and Termotehnika fell into a new problem. Namely, according to data from the Central Depository Agency, it appears that Brionka d.d. de facto controls its largest individual shareholder, which can also be interpreted as Brionka controlling much more than 10 percent of the allowed amount of treasury shares. Brionka is the sole owner of Puljanka – Brionka d.o.o., which is, in turn, the majority owner of Termotehnika d.d., Brionka’s largest individual shareholder.

The Greatest Value – Real Estate

Faggian, on the other hand, states that Puljanka has transferred the remaining stake in Puljanka – Brionka to Brionka because that company was originally established as one of Puljanka’s dependent companies engaged in bakery activities. Since all companies operate in the group, they decided, he says, to completely leave the bakery business to Brionka because the idea is for each company to do its part of the work.
With Puljanka, which is publicly considered the main company of the group, the situation is even more interesting. Although merely reading the ownership stakes of the top ten shareholders in the Central Depository Agency is not a completely reliable indicator, the data suggests that it is possible that a few people actually control up to 50 percent of Puljanka’s shares.

Faggian personally controls about 25 percent, CEO Zoran Vencl, management member Korado Soldatić, and supervisory board member Dragan Stojkovski together hold 10.21 percent of Puljanka, while the second largest shareholder is Brionka d.d., which has 13.98 percent of Puljanka, and this ownership stake is, of course, under the control of Brionka’s CEO Korado Soldatić and the Anić family, predominantly represented in Termotehnika. The new member of the Istra family is not a simpler case either. It is possible that the group of entrepreneurs lacks little or almost nothing to control 75 percent of the shares in Istra. With Puljanka as the majority owner (62.9 percent), Faggian through Andre d.o.o., Soldatić through Puljanka – Brionka, and Dragan Stojkovski through his company Geo Biro control 9.79 percent of the company.

When it comes to assessing the value of individual companies, the greatest value is certainly real estate, which is abundant especially in Istra and Puljanka. What the market value of all the real estate in the center of Pula and beyond managed by these companies is can only be speculated, as Faggian says they have not assessed the total assets. For illustration, according to data from the fresh prospectus for the listing of Istra’s shares on the stock exchange, the company’s assets were 114 million kuna, but it was later determined that only the real estate in the Šijani industrial zone is worth 93.6 million kuna. This is the amount by which the share capital of Puljanka Engineering was increased, a company that Puljanka recently transferred to Istra, and then recapitalized with Istra’s real estate in Šijani. A large shopping center is planned to be built on about 70,000 square meters. However, in addition to these properties, Istra also owns the department stores Pula and Veruda and many retail outlets in Pula and surrounding areas, so it is clear that the value of its assets is much greater than that stated in the balance sheet.
Puljanka has 40 retail outlets, of which the high-value stores in the center of Pula, and Brionka has land at the exit of the city where the Brijuni Riviera project begins. These three companies together hold the majority of valuable construction land in Pula.

By the way, Puljanka Engineering is a company engaged in residential construction, but although it is logical to assume that this is a very lucrative activity that the management of Puljanka and Istra wants to improve the results of their core business, Faggian says they do not intend to expand this activity and build apartments for the market, but that Puljanka-Engineering primarily works on repurposing retail facilities, and that the apartments above these stores serve to cover the investment. Instead of the mentioned real estate, Istra’s balance sheet will record the business share in Puljanka Engineering of the same value, just as, Faggian claims, instead of Puljanka’s real estate being used for the current recapitalization of Istra, the same value will be recorded in Puljanka’s balance sheet in the position of securities.

The recapitalization of Istra of 45.4 million kuna, which is mostly carried out with Puljanka’s real estate, then the write-off of receivables (which Faggian assessed as a misinterpretation because, as he claims, Puljanka invested that amount in Istra over the past two years) and with only 1.46 million in cash, is only a small part of the total planned 158 million kuna by 2010. Although Puljanka’s business, at least according to the latest reports, shows a negative trend, Faggian emphasizes that in the continuation of the recapitalization, the share of finances will be larger and that they are not at all afraid of the announced moves by the State Attorney’s Office. Furthermore, it is not excluded that Brionka or any third company will recapitalize Istra.

Owners Are Not Concerned About Poor Business Results

Like Puljanka (although it is not clear from the consolidated report whether it would operate positively on its own), Brionka also ended the first six months of this year in a larger deficit than the year before. The consolidated net loss of Puljanka was 7.14 million kuna, which is an increase of 81.74 percent. According to the management’s interpretation, the loss increased due to rising operational and other costs that grew faster than revenues, but Faggian says that the second half of the year with the effects of the tourist season accounts for three-quarters of revenue, so he expects a positive result at the end of the year. Brionka, on the other hand, increased its loss from 41 thousand kuna to as much as 679 thousand. The development strategy of Puljanka, which mainly has small retail outlets, is to maintain these formats, but also to specialize all retail outlets. Brionka will focus on acquiring smaller local competitors to maintain its leading position in the market.

Additionally, all companies will relocate their management and warehouse spaces from Šijana, where a shopping city will emerge, to the Galižana business zone. Although it is a trading company that is often (given its local character, dispersed ownership structure, and unattractive growth rates) targeted by larger acquirers, Puljanka will find it difficult to change owners. There have been interested parties, from Konzum, which had rented Puljanka’s facilities for five years and then unexpectedly ended up empty-handed, to allegedly Mercator, but the group managing the company, says Faggian, is not interested in selling shares. The remaining state stake in Puljanka still held by HFP and HZMO will also, as things stand, end up in the hands of the existing group of entrepreneurs, although they officially say they will only think about it when the sale is announced. The only question is who will take over that 17 percent of state shares.