Банкеръ Weekly



The privatisation of Bulgartabac Holding subsidiaries was officially started on July 19 - two weeks after the Supervisory Board decided how the companies would be offered. The board members announced that four subsidiaries defined as the best in the holding structure would be offered in two blocks. One of them includes 85.24% of the capital of Blagoevgrad BT and 78.18% of Sluntse - Stara Zagora BT. The trademarks Victory, Prestige, Nevada, Country, Vereya, Melnik, and Shipka will be sold along with the shares. The second block includes 78.22% of the capital of Sofia BT and 78.18% of Plovdiv BT, as well as the trademarks Sredets, Tresor, New Line, MM, Femina, and Arda. The trademarks were owned by the holding which ceded their licences to its subsidiaries. Transferring them from Bulgartabac Holding to the tobacco plants was among the most significant moves within its restructuring process. It is normal that investors are most interested in the names that have made tobacco products popular, because in practice these names provide the market.The two competitions will be held simultaneously and candidates for one share block will also be allowed to apply for the other. The requirements are the same for the two blocks, too. The competition will be open to companies in the cigarette production branch which have at least five-year experience and tobacco sales revenues exceeding EUR500MN. The competition for the Bulgarian tobacco plants will also be accessible to companies that do not meet these requirements but which are property or part of a holding that meets them thoroughly. The competition will be forbidden for consortiums that include companies not meeting the criteria. Candidates which the state assesses as monopolists will not have a chance to acquire the plants, either.Candidates allowed to take part in the competition can buy the necessary sets of documents for EUR30,000 each no later than August 6. Potential buyers must also sign a confidentiality agreement by August 13, as well as pay a EUR1MN bank guarantee in favour of the holding.Offers will be accepted by September 30. They will be assessed by Bulgartabac Holding, the financial consultant Morgan Stanley Co Ltd, and the privatisation legal advisers, Freshfields Bruckhaus Deringer, and Kambourov Partners. The supervisors of the holding may extend the offer submission deadline as long as they consider necessary. They also have some loopholes to make changes to the technical requirements, as well as to the interpretation of the competition criteria.There is one technical requirement that candidates must present a copy of their registration document and a certificate of the current legal status. Potential buyers contolled by companies that meet the requirements also commit themselves to describe the actual structure of their ownership. This condition may only be invalid for a company which is traded on internationally recognized stock exchanges. The harsh privatisation experience with Tobacco Capital Partners forced Bulgartabac Holding supervisors to ask for the applicants' preliminary confirmation that they are neither acting in favour of a third party nor planning to transfer the assets acquired to someone else.The decision to sell the tobacco plants separately was dictated by the expectation that it would make the privatisation more profitable. The privatisation strategy developed last November claims that the price will be made through the methods of the capital market to test and define indicative prices of the companies. According to the current market prices on the stock exchange, the first block consisting of the shares of Blagoevgrad BT and Sluntse Stara Zagora BT costs BGN298.9MN, while the second including Sofia BT and Plovdiv BT is worth BGN144.9MN. Experience shows that a premium is often added to that price and it is usually about 15 per cent. So far official interest in the shares of tobacco companies has been declared by British American Tobacco, Philip Morris, Imperial Tobacco, and Gallagher.The holding itself has some engagements towards the future owners of the plants, too. Its privatisation strategy developed last November stipulates that no cigarette brands owned by competitors of the investors who privatized companies from the group be produced within a certain period of time. After the privatisation is completed, the retail prices of cigarettes and raw tobacco will still be defined by the Council of Ministers, but the buyers of the plants will be aware of the price-making mechanisms. The scheme will be applied until 2007, when the practice of the European Union will be entirely adopted.It is still to be seen what will happen with the rest of the companies in Bulgartabac Holding. According to the privatisation strategy, an attempt will be made for the restructuring of Pleven BT, Haskovo BT, Assenovgrad BT, Shoumen BT, and Vidin BT. These companies will concentrate on processing tobacco, while the cigarette production will become a priority of the plants now offered for sale. If the remaining ones attract interest at the end of the arrangement procedure, they will be privatized, too. Otherwise, they will remain under the control of Bulgartabac Holding. In turn, the remaining subsidiaries will be liquidated. However, no deadlines have been fixed yet.What will happen to the holding after the privatisation is not clear, either. According to the privatisation strategy, it will involve the restructured companies to which no investors have shown interest and the privatisation revenues that have not been added to the social fund. Then a stake of the holding may be sold, too. However, its size will allow the state to keep exercising its control.

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