Банкеръ Weekly



ERSTE BANK IS STILL TO DECIDE WHETHER TO APPEAL AGAINST BCC'S DECISION TO PICK UP HUNGARY'S OTP AS PREFERRED BUYERBank privatisation in Bulgaria has almost come to an end, as the agreement for the sale of DSK Bank is soon to be signed. This is expected to happen on May 23 - ten days after the Board of Directors of the Bank Consolidation Company (BCC) announced the Hungarian OTP Bank preferred buyer of DSK on May 13. Before signing the agreement, the Hungarian bankers have to deposit into BCC's account EUR31.1MN - 10% of the negotiated price of EUR311MN.If no agreement is signed with OTP within ten days, the consolidation company has a right to begin negotiations with Erste Bank- the candidate that was ranked second, Milen Velchev, Chairman of BCC Board of Directors and Minister of Finance, said at the end of BCC's meeting. The decision was made by two vice prime-ministers - Lidiya Shouleva and Nikolay Vassilev, the Governor of the Bulgarian National Bank (BNB) Svetoslav Gavriiski, the Finance Minister Milen Velchev, his deputy Krassimir Katev, and BCC's Executive Director Nelly Kordovska.Besides, Minister Velchev reminded that both the Hungarian and the Austrian offers had been assessed by the offered price, the amendments to the sales draft agreement, the financial stability and image of the candidate, as well as his experience in retail banking (the criteria were announced by the BANKER weekly on May 1).The offers of both candidates were competitive in every aspect, Milen Velchev told the media. The higher price offered by OTP appeared to determine the choice, he added. OTP's offer exceeded by EUR18MN the offer made by Erste Bank. The Austrians were ready to pay EUR293MN in order to acquire DSK Bank, the Finance Minister explained. Erste Bank has no reasons to appeal in court, the choice of OTP as preferred buyer, he said.The only reason why BCC rejected Erste Bank's offer was the lower price, Michael Mauritz, Erste Bank PR Director, confirmed in front of a reporter of the BANKER weekly. Erste Bank is still to consider a possible appeal against BCC decision, he added. First of all, Erste Bank should be officially informed that OTP was chosen preferred buyer of the Bulgarian savings institution. On May 13, 2003, Finance Minister Velchev refused to announce in front of the media any details regarding the agreement with OTP before the document was signed. That's why rumours appeared that by May 23 the BCC would try to force Hungarian bankers to reduce their claims for the escrow account and the guarantee agreement that they will request from BCC. According to some members of BCC's Board of Directors, however, there are few chances for negotiations in this aspect. A month ago, both OTP and its Austrian competitor accepted the sales agreement as proposed by BCC, the same sources claimed. According to some financiers, the purchase-sale agreement includes a provision that the BCC shall give to the buyer of DSK Bank guarantees amounting to 25% of the price.According to inofficial information, the BCC will deposit 10% of the purchase price - EUR31.1MN in an escrow account, from which OTP will be able to draw money in case it finds financial or legal irregularities in DSK Bank, for which it has not been informed. The BCC will also sign a guarantee agreement with OTP, worth EUR46.65MN according to some financiers. This amount is 15% of the price paid for DSK Bank. Thus, added to the money in the escrow account, the buyer will get 25% guarantees.One of the terms in the agreement will be that the EUR46.65MN shall be restored to the buyer in case of amendments to tax legislations that are unfavourable to him. This was one of the clauses in the guarantee agreement, signed in July 2000 between the BCC and UniCredito Italiano - the buyer of BULBANK.The BCC and OTP are not the only parties, interested in the quick finalization of the sale deal. The consultant in DSK Bank's privatisation - the US JP Morgan is also interested in that. Considering that the net value of DSK Bank's assets - about EUR140MN - and the scheme for calculating the consultant's remuneration, JP Morgan will get a fee of about EUR4MN. Just for comparison we'll recall that for the sale of BULBANK (for which UniCredito paid EUR360MN), the consortium that was a consultant in the deal (which included Creditanstalt Investment Investment bank, Credit Swiss First Boston, and Arthur Andersen) received from the BCC a fee EUR6MN-plus.The Finance Minister Milen Velchev announced that JP Morgan would get its remuneration only after the deal's finalization. The procedure is as follows: after signing the agreement an announcement for a general meeting of DSK Bank should be published in the Official Gazette. The meeting can be held a month after the publication at the earliest. Together with the publication of the announcement the candidate buyer files an application to the BNB for a permission to acquire 100% of the Bulgarian bank's shares. It is expected (if the buyer's documents are in order) that the central bank would issue the respective licence by the date of holding the general meeting. Prior the meeting the buyer should pay to the BCC the entire amount for 100% of DSK Bank's capital. After the money is remitted, the BCC will transfer its shares in the savings institution to OTP, and the investor's representatives will vote with them at the general meeting. The buyer will certainly change DSK Bank's Supervisory Board, replacing the representatives of the Bulgarian State with its own officials. Only after the buyer walks all along this way, DSK Bank will be born anew from a state-owned to a private credit institution.

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