Банкеръ Weekly

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BCC'S SEVEN LIVES

COMPANY'S LIQUIDATION WILL BRING EUR390MN TO ITS SHAREHOLDERSThe Bank Consolidation Company (BCC) is ready to depart into history, after on October 2, 2003 Hungary's OTP paid the balance (90%) of the promised EUR311.1MN and acquired all DSK Bank shares. After the deal's finalization the BCC holds no more stakes in Bulgarian credit institutions. With the sale of DSK Bank the BCC exhausted the subject of its activities, the Chairman of the Parliamentary Budget and Finance Commission Ivan Iskrov commented in front of the BANKER weekly back on May 22, 2003 (two days after the BCC signed the preliminary contract for the sale of the Bulgarian credit institution). In end-May 2003 the Finance Minister Milen Velchev, who also chairs BCC's Board of Directors, said that the money from the sale of DSK Bank should enter the Treasuty by the end of 2003. Four months and a half after his statement, it's clear that his wish is practically unrealizable. The reason is that the Finance Ministry may not draw money from BCC's accounts, although it holds 99.5% of its capital, because the BCC is a joint-stock company, set up in compliance with the Commercial Code. Under its provisions, liquidation is the only way to wind up the BCC and its assets to be distributed among its shareholders. The latter should make a decision for the opening of a liquidation procedure at a general meeting, and the decision is to be registered in the Sofia City Court, which appoints liquidators. They, on their part, are obliged to invite all creditors of the company to claim their receivables. After payment of the liabilities, the remaining property is distributed between the shareholders in compliance with their share in the company's equity capital. This is done not earlier than six months after the invitation to creditors is published in the Official Gazette (under article 272 of the Commercial Code). Prior the liquidation procedure the BCC should settle the fulfullment of several commitments. They are mainly to Bank Austria (which purchased Biochim Commercial Bank in October 2002 against EUR82.5MN) and to Hungary's OTP (which bought DSK Bank's shares on October 2, 2003 against EUR311MN). An integral part of the contracts for the two deals are the guarantees, given by the BCC to the buyers, that after they pay the purchase price they won't be unpleasantly surprised by unexpected financial and legal problems. As a guarantee the BCC opened in favour of the two buyers escrow accounts, equal to 10% of the paid price. These accounts are valid for a year. Presently, however, only OTP may use that extra, as the term of the escrow account in favour of Bank Austria elapsed in the beginning of October 2003. Moreover, the BCC has signed with Bank Austria and with OTP guarantee agreements under which it will cover the investors' losses in case of amendments to tax legislation that are unfavourable for them. The agreement with Bank Austria will be valid for five years and the size of the guarantee is up to 35% of the purchase price. The agreement with OTP is for six years and the BCC has undertaken to pay to the Hungarians for losses which do not exceed 25% of the EUR311MN, paid for DSK Bank. A similar agreement was signed in July 2000 between the BCC and UniCredito Italiano - the buyer of BULBANK, but its term elapses in November 2003. These commitments won't be a hindrance to completing BCC's liquidation. But in order to conduct it successfully, BCC's commitments to Bank Austria and OTP should be undertaken by the State. However, the form by which this should be done is still being discussed. One possibility is to pass a law under which BCC's all guarantees shall be transformed into State pledges.For the purpose the Finance Ministry should propose a draft for consideration by the Council of Ministers and if approved the bill will be moved to Parliament. However, this approach would set a precedent, as a law will settle the relations between private investors and a joint-stock company, which although with predominating state participation, is registered under the Commercial Code. Some experts fear that this might give rise to requests for settling by a special law problems of Bulgartabac and the telecom operator BTC for example.The second possibility is easier to be realized. The State, represented by the Finance Ministry, shall undertake BCC's commitments to the buyers of Biochim and DSK Bank. For the purpose, trilateral agreements are to be signed between the BCC, the Finance Ministry, Bank Austria and OTP. The Government and the National Assembly should choose one of these two schemes before the decision for opening a liquidation procedure for BCC is discussed by its general meeting.According to the Chairman of the Parliamentary Economic Commission Valeri Dimitrov, BCC's liquidation is not among the most urgent issues to be discussed by the Cabinet and Parliament.Presently, we are busy with the amendments to the Public Procurement Act. We have concentrated all our efforts and attention on that. After these amendments are passed by Parliament, we may think about solving the problem with BCC's commitments to foreign investors. So far I have not made up my mind if it would be better to do that by a law or by trilateral agreements, Mr. Dimitrov said. Ivan Iskrov, on his part, said he was not acquainted with the concrete schemes for settling the relations between BCC and the buyers of Biochim and DSK Bank. These statements are strange, as according to BCC's Executive Director Nelly Kordovska the drafted options for transferring and settling the company's commitments to Bank Austria and OTP have been filed both to the Government and Parliament. But there is not much time for discussions and approval, having in mind the various technological and legally set terms. E.g. the term between announcing and holding the general meeting of shareholders is one month. It is known that February 14, 2004 has been set as the deadline for terminating the operation of the BCC. But throughout the years it became evident that like cats the BCC has several lives. The privatisation of Bulgarian credit institutions was launched in June 1997 with the sale of United Bulgarian Bank (UBB) for USD3MN to a consortium, including BULBANK, the European Bank for Reconstruction and Development (EBRD), the US Investment Fund Oppenheimer Co. (in 2000 they sold UBB to the National Bank of Greece for EUR206MN). Over the next five years the BCC sold out Bulgarian Post Bank, EXPRESSBANK, HEBROSBANK and Biochim. The chain of privatisation deals was completed some ten days ago with the purchase of DSK Bank by OTP. Therefore, BCC's existence is already void of meaning. But the company may get one more life if the rulers delay the above-mentioned decisions and BCC's liquidation is not declared by February 14, 2004. Neither the Government, which represented by the Finance Ministry holds 99.5% of BCC's assets, nor its other shareholders - the Sofia Municipality and almost 1,000 private firms - will profit if BCC's life is extended.
After the sale of DSK Bank there is about EUR390MN in BCC's accounts. This is what has remained of all the proceeds - around EUR870MN - which the company received from the sale of UBB, Bulgarian Post Bank, EXPRESSBANK, HEBRSBANK. BULBANK, Biochim, DSK Bank, and 32.7% of the shares of Central Cooperative Bank (CCB), purchased by for BGN6MN by Chimimport in the end of 2001. As BCC's liquidation cannot be completed in 2003, it should pay taxes again next year and only afterwards the liquidation quota of each of its sharholders could be calculated. As it is known, it is evaluated on the basis of their stakes in the company. The Finance Ministry, for example, will get 99.5% of BCC's money, the Sofia Municipality - 0.45%, and the other shareholders in the BCC will distribute between themselves 0.05% of its assets. Among these holders of small packages of shares are: the companies Chimimport and Nitex, and the financial institutions UBB, HEBROSBANK, EIBANK, ROSEXIMBANK, and CCB. According to BCC's lawyers, some of its securities are owned by companies declared insolvent or in liquidation. Regardless of the fate of BCC's small shareholders (which are more than 1,000 in number), they or their inheritors should be found. The BCC will open bank accounts to all of them and remit the money they should get as liquidation shares. This, according to BCC's lawyers, will take quite a long time. But if the search begins immediately after choosing the scheme for settling BCC's commitments to Bank Austria and OTP, until the completion of the liquidation procedure the BCC will know how to distribute its assets.

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