Банкеръ Weekly



After the court fiasco of the deal on Bulgartabac, the sale of the Bulgarian Telecommunications Company (BTC) is on the agenda, persons close to the higher juristic circles said during the week. If no significant increase of the national telecom's price is achieved, Prosecutor General Nikola Filchev might take up the matter himself or order an inspection on the warning of MPs from the opposition for drastic violation of the national interest. Indeed, the national interest issue is more or less disputable (at least at present), but the extremely low price offered for BTC is a fact. The purchase price which the buyer is ready to pay for 65% of the Bulgarian telecom's shares is equal to the company's net profit for 18 months. It is also a fact that the sale of a main telephone line at less than USD100 is somehow offensive as compared to the deals on Hungary's, Poland's, Czech Republic's or Romania's telecoms, where a telephone line was sold at USD1,750, USD1,350, USD1,072 and USD1,490 respectively. The EUR200MN, offered by the chosen candidate-buyer, cannot be compared even with BTC's insurance value, calculated by appraisal of its tangible long-term assets for 2002 at almost BGN700MN.Nobody argues today that the State is the worst possible owner, and that under any other form of management and ownership the possibilities for development and prospering af any company would multiply. But in the sphere of natural monopolies market logic depends on somewhat different rules - those of public needs. No matter whether telephone or water supply services are concerned, railway transport, central heating or electricity supply, these extras should exist and be available to any member of the community. That is why the deal on the BTC goes beyond the scope of purely technical rules of the divestment procedures which are within the competence of the Privatisation Agency. Both the executive and the legislative power are responsible for the sale of the national telecom.The procedures for divesting 25% of BTC's assets were launched back in 1996 by Zhan Videnov's government. However, the Socialist cabinet collapsed before the nomination of a consultant on the deal, leaving behind two eloquent blunders. The ungrounded statements of the then vice-premier Rumen Gechev that BTC's price was USD4BN caused sceptical smiles, but the second blunder tuned out fatal. The Socialists' ambitions surpassed the USD500MN, offered in the summer of 1996 as a credit from Deutsche Bank. The only guarantee, demanded by the German bankers then, was a pledge on shares sold by the BTC and a firm commitment that the telecom would be restructured by a managerial team of Deutsche Telecom, after which its paper would be launched on the international stock exchanges. Former premier Videnov's cabinet refused the offered USD500MN and a few months later together with our savings, inflation ate up the government as well. BTC's sale became on one of the priorities of the UDF-coalition cabinet as well. It chose a consultant on the deal, drafted a new act on telecommunications, allowing the telecom's divestment, and on August 7, 1998 renewed the cancelled privatisation procedure, putting up for sale 51% of BTC's shares (i.e. the controlling package) and a licence for a second GSM-operator. Seven months later instead of the expected four or five offers from big European investors, only one candidate-buyer turned up - a consortium between the Greek state-owned company OTE and the Netherlands' national operator KPN. The purchase price of USD415MN, offered then and also qualified as offensively low, was accepted by the UDF-coalition cabinet as a basis for additional negotiations. Eighteen months later the sale failed. The reason was not the price which was meanwhile increased to USD615MN. The stumbling stone in 2000 were the compensations and guarantees, demanded by the candidate-buyer. Today, the Cabinet of Simeon Saxe-Coburg-Gotha is faced by much more problems. The basic ones are three this time, but while those regarding the price and the unestablished regulatory framework (more specificly the extended monopoly of the BTC) are widely commented in public, the form of the divestment itself remains somewhat aside. The BTC is presently being sold to an investment intermediary, which will nominate the managerial team to restructure the telecom and sell it afterwards (at a good profit). The described scheme does not differ much from Deutsche Bank's proposal of 1996. The BTC will be practically managed by a foreign operator with a clearly defined time and financial frame (i.e. stages for reconstruction and regulated increase of the telecom's proceeds and net profit). The visible difference from 1996 is that the remuneration to the present team is calculated as a rising percentage of EBITDA (the company's profit prior depreciation allowances and direct taxes). And the biggest difference is the direction to which the profit from the resale of the national telecom will go - nothing will enter the Treasury. For that reason perhaps, on the very day when the final bids were submitted (September 24), obviously dissatisfied with the offered price Transport Minister Plamen Petrov announced that a reserve scenario for the BTC had been prepared. It projects a loan of USD100-200MN, convertible in shares, to be allocated to the telecom by the European Bank for Reconstruction and Development (EBRD) and the International Financial Corporation, an agreement with a managerial team (with detailed managerial tasks and targets), followed by launching BTC's shares on the international stock exchanges by the same team. The only thing that was not explicitely stated was that this scheme had been supported by both the IMF and the World Bank. The reserve scenario has been laid aside for the time being. During the week the Government admitted at last that on October 22 it made a decision, authorizing the Privatisation Agency (PA) to finalize the deal on BTC. The decision describes in detail the obligations of the Transport Minister and the Finance Minister, as well as those of heads of power institutions. Only after the higher state officials say their say the PA will begin negotiations with the nominated exclusive buyer. PA's head Apostol Apostolov specified that talks will be held directly with the US investment fund Advent and not with its Vienna-based subsidiary Viva Ventures.

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