Банкеръ Weekly

Briefs

BULGARIA IS FAR FROM RECORDS OUTSIDE PRIVATISATION

Every month or so the Bulgarian Privatisation Agency (PA) boasts of the amount of its privatisation revenues and reports ever growing records. The Bulgarian Investment Agency does not fall behind and keeps announcing the amount of greenfield investments which according to its experts is a real miracle. Even though private acquisitions and mergers remain unnoticed for the present, they undoubtedly represent another important element of Bulgaria's economic appearance. According to the international Deallogic company, 162 mergers and acquisitions were carried out in Bulgaria between 1995 and 2004 in which one of the sides was always a foreign company. The deals amount to USD3.2BN. The highest results were reported in 2000 when acquisitions and sales reached the record high USD1.2BN. For comparison, deals did not exceed USD200MN in the rest of the years. One exception was the sale of 40% of MobilTel's capital in July 2004. The stake was sold to a consortium of seven investment companies including ABN AMRO Capital, Citigroup Investments Inc. and Communications Venture Partners Ltd. The deal amounted to USD1.3BN. Afterwards, the Austrian businessmen Josef Taus, Herbert Kord and Martin Schlaf kept 60% of the shares of the mobile operator, so practically no changes in MobilTel's ownership were registered. The BAWAC bank was the only one that quit the company. Owing to the sale of assets of the mobile operator, the Bulgarian telecommunications sector ranked first in terms of attracted investments - USD2.2BN, during the past five years. The banking and insurance sector fell behind with 48 deals and USD451.35MN attracted investments.The greatest number of mergers and acquisitions, 50, occurred in the processing industry. Their total amount reached USD171.64MN. Forty seven deals were signed in the food, textile, and furniture industry, totalling USD73.06MN. Construction, transport, and logistics ranked last.According to economic experts, Deallogic's figures do not sound surprising. Still, some of them describe them as disturbing. Especially if one takes into account the fact that part of the numbers reflect operations that practically did not result in changed ownership. Specialists give a partial explanation by saying that the research spreads over a period in which privatisation in Bulgaria is not over yet, therefore there is a narrow field for acquisitions and mergers. They also say that it has become an established practice in Bulgaria to buy assets rather than enterprises. Moreover, observers say, attention should be paid to the fact that investors prefer to put their money in greenfield investments, because a great part of the Bulgarian companies own outdated equipment and modernising it would cost a lot. And that is why greenfield investments exceeded USD1BN for the second year in a row.Only 116 cases in which a Bulgarian company acquired another local enterprise were registered in the past nine years. The total amount of the deals goes to nearly USD295MN. As far as Deallogic's data show, not even one Bulgarian company acquired an enterprise in Eastern or Central Europe between 1999 and 2002. The first deal of that kind was only signed in 2003 and amounted to USD2.46MN. Of all the fifteen countries included in the research (Hungary, Croatia, Slovakia, Poland, Slovenia, Latvia, the Czech Republic, Macedonia, Estonia, Serbia and Montenegro, Lithuania, Romania, Bulgaria, Bosnia and Herzegovina, and Albania), Bosnia and Herzegovina as well as Albania were the only two that fell behind Bulgaria in terms of cross-border transactions amount. On the top there were Hungary and Croatia which invested respectively USD1.1BN and USD606.74MN in Central and Eastern Europe. Slovakia ranked third with investments amounting to USD355.94MN. It is to be noted that the amount of the deals and not their number is growing every year.Investors from these 15 countries were even more modest when investing outside the region. For the past five years they signed 82 deals totalling USD951.58MN. Almost a half of this amount was due to the eleven transactions carried out by companies in Croatia. They amount to USD484.32MN. Following are Poland and Hungary with USD196.26MN and USD185.05MN respectively. Bulgaria ranks in the bottom with just one deal signed.However, in the reverse process of attracting foreign funds through deals outside privatisation Bulgaria performed much better. It ranked fourth among the 15 countries in the past five years (43 transactions brought USD3BN in the country). Still, this is only a fifth of the money that Poland attracted. From 1999 till 2004, USD14.5BN were poured in that country in 722 deals. It is followed by the Czech Republic and Hungary with USD10.2BN and USD9BN respectively. During that period, 2,734 mergers and acquisitions were carried out in the region, totalling USD46.9BN.Germany is the country that invested the biggest amount in acquiring private assets in Central and Eastern Europe. It spent USD9.2BN in the region in the past five years and the number of deals signed by German companies reached 385. More than a half of the money was invested in 2000. Austria ranked second with USD4.4BN worth investments. Right behind there are the USA and France with USD4.2BN and 4.1BN respectively. The biggest amount of money entered Central and Eastern Europe in 2000 (USD14.8BN). Finance and telecommunications as well as pharmaceutics and chemical industry appeared the most attractive sectors for acquisitions (in Bulgaria, too). According to Georgi Angelov, an expert in the Institute for Market Economics, the biggest number of mergers will be registered in the financial sector. Bulgaria's integration into the European Union will be the main reason for that (the licensing regime for EU financial institutions will be cancelled and Bulgarian banks will be forced to seek more powerful partners in order to resist the competition). Estonia demonstrated a similar practice - since it entered the EU, the number of banks there has grown three times. Actually, a process of enlargement has already started in Bulgaria, too. Bank Austria Creditanstalt and its subsidiary in Bulgaria, HVB Bank Biochim, acquired 99.9% of the capital of HEBROSBANK on March 1. According to the plans, in 2006 the two Bulgarian institutions will merge. The buyers paid a price which was not announced officially but was believed to amount to EUR114MN, according to bankers. Then the Greek Piraeus Bank filed a request asking that the Bulgarian National Bank (BNB) allow it to acquire 99.7% of the shares of EUROBANK which are still considered property of Petrol Holding. Georgi Stoev, an analyst from Industry Watch, forecasts that the largest deals are to be signed in the field of telecommunications and energy after privatisation in these sectors is completed.

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