Банкеръ Weekly

Briefs

FUNDS TURN OFF THE TAP FOR THEIR SHAREHOLDERS

Most of the former privatisation funds will not be distributing dividends. After they held general meetings it became evident that they have made moderate profits only - just sufficient to not completely discourage their shareholders and drive them away.
There could hardly be a single answer to the question what led to that situation and were there any other possibilities for the survival of these structures. Privatisation funds were set up in 1996 with the idea of collecting the voucher books from the population, manage professionally the packages purchased with them, and also operate as investment companies. In the course of time, however, it turned out that it was not so easy. A considerable part of the acquired shares could not be sold at an appropriate price simply for lack of candidate buyers. On the other hand, the majority of the funds' managers like to exercise control over dozens of companies, which although negligible in terms of their assets and volume of sales, are attractive as a sources of incomes from membership in their management boards.
In that sense, the transformation of 90% of the privatisation funds into holdings and not into investment companies was only natural. Their shareholders didn'd have any objections either, especially in the first years after the mass privatisation during Zhan Videnov's government when larger dividends were distributed as gains from sale of comparatively liquid packages were higher. Enthusiasm surged high in 1998 and market prices of the leading holdings' shares picked up to BGL5-6 apiece.
However, proceeds from the stocks in companies such as LUKoil Neftochim, Solvay-Sodi, and the tobacco companies stopped and the holding structures were faced with a difficult dilemma: to either sell out their majority participation and distribute the proceeds in dividends, or continue to manage them with more remote prospects. A great number of the holdings chose the second option, which was confirmed by the trifling dividends, distributed to shareholders on the basis of earnings for 2000.
Only four of the twelve leading funds voted for distribution dividends, the highest of which - BGL0.12 per share before taxation. Only AKB Corporation has not held its general meeting yet. But as the company reported a BGL4,304,000 loss for last year, it is known for sure that its shareholders will not get anything. However, they have received nothing so far, and a close look at the corporation's accounting reports would inevitably lead to a conclusion that they cannot be expecting anything in the future either.
Although the privatisation funds were alloted to play the part of Bulgarian industrial capitalists, it turned out they did not have the necessary management personnel to perform it. For that reason the success of mass privatisation is not substantially different from divestment through the notorius management-employee buyout teams (MEBOs). During the first organized tenders, the average public could buy shares mostly in unattractive moribund enterprises. And the major aim of the founders of privatisation funds seemed to be the establishment of entire control over these structures. And they succeded in doing so, despite of some conflicts as in the case of Orel Invest Holding.
Thus, after several consequtive capital increases, the most successful of them for the time being - Albena Invest Holding and Petrol Holding Group - have gained full control over two companies each. The post-orivatisation development of Trud i Kapital Holding, MG Elit Holding, Bulgarian Holding Company, and of the only open-type investment company Zlaten Lev, was similar.
What will happen from now on? Due to the depreciation of stocks on the local capital market, shareholders in funds that have decided to sell out their paper would gain trifling sums. According to experts, they could hope for BGL3 per share at the most. There are more optimistic possibilities for some of the holdings. If Albena Invest Holding, for example, sells its stocks in the eponymous resort at higher prices, the shareholders could get better earnings.
However, the funds' managers prefer to continue managing the companies in their portfolios. The idea of Daniel Rizov, Executive Director of Aktsioner Favorite Holding, is indicative in that respect. The holding will distribute dividends, but only as a portion of the profits of its enterprises. According to Mr Rizov, the holdings' existence is justifiable if they finance their subsidiaries when neecssary, at that at preferemtial interest rates of 10-12 per cent. In that way the companies will get cheap credits in time. If the enterprises begin to post considerable profits, then the holding's shareholders could count on getting higher dividends.
Other funds, such as Trud i Kapital Holding, intend to expand by setting sub-holding structures. Such a structure has already been established by Doverie United Holding among its subsidiaries in wood-processing, and will be mareketing their prodcuts. Industrial Holding Bulgaria directly orientated to purchase of majority packages in big industrial plants. An example is the acquisition of most of the stocks in the Shoumen-based Alumina. There are such cases in almost all holdings. They make more remote their shareholders' chances of getting dividends, but if the management of investments is proper, the price of their stocks would be increasing.

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