Банкеръ Weekly



For a long time now it has been known that the Military Industrial Complex in Bulgaria is destined to pass into history. What is of interest now is the way in which the one time pride of the nation will do that - through privatisation or bankruptcy. Unfortunately, the second possibility seems much more likely. Presently, only 26 of these enterprises make defence industry products, and another 15 - goods and technologies of possible dual use. Although many world companies showed interest toward them throughout the years, when it came to submission of final offers the candidates mysteriously disappeared. The three privatisation procedures in the last week of January passed in the spirit of tradition - two of them were cancelled, and the third was closed with only one offer submitted. Ninety two per cent of the Rousee-based Dounarit were purchased on January 31 at the initially set selling price of BGN2MN. The buyer is the Sofia-based company Dival 59 - the only bidder in the tender. Within 30 days the new owner should be granted a permission for access to classified information. The deal is to be approved as well by the Supervisory Board of the Privatisation Agency (PA). Dival 59 is owned by Emil Ivanov Galov and its subject of activity is forwarding and deals in real estates. Dounarit, on its part produces mainly military explosives which it sells through the mediation of Kintex, as well as office equipment, plastics articles, railway and agricultural equipment. The company owns real estates and land of 1,213,500 sq m aggregate area, of which 83,822 sq m are included in its capital. Like the remaining enterprises within the structure of the Military Industrial Complex, it is also in a dire financial situation and is paying off its multi-million debts by selling out assets which are not directly connected with its operation. The tender on Monday practically put an end to a 7-year-long divestment procedure, opened back in 1998.However, Terem and Vointech were not so lucky and will still be waiting for the outcome. The procedures for their privatisation were cancelled in the last moment - one of them because of lack of candidates, and the other - due to a levied distraint order.A single offer was filed for the 75% share of Terem's eight companies (in Sofia, Plovdiv, Varna, Kostenets, Bozhurishte, Veliko Turnovo, Provadiya and Turgovishte) and the Board of Directors decided to cancel the tender. In fact the lack of competition was known a whole week earlier, when only Luerssen Bulgaria and Partners filed documents for participation in the last stage of the sale. The company, registered especially for the privatisation of the Terem's military repair works, is owned by the German concern Luerssen Werft GmbH Cо, a world leader in the production of speed-boats, yachts and other vessels. However, its offer will not be considered and the deposit for participation will be returned. From now on the fate of enterprises within the structure of Terem EAD (which has been included in the list companies, banned for privatisation) will be in the hands of its Board of Directors and the Ministry of Defence. According to inofficial information, next week the BoD will hold a meeting to discuss if the companies should be sold out as self-contained parts instead of in a package. It is believed that under these conditions many of the applicants who bought initial tender documents will return to the competition. The list includes the British BAE Systems Avionics Limited, the Italian Fincantieri SpA and Finmeccanica SpA, the Sofia-based Millenium Industry, Electron Progress, and Strategic Defence Systems, Varna Marine Technological Group, and the above-mentioned Luеrssen Bulgaria Partners. Interest may also be demonstrated by the applicants who did not acquire documents such as the US giant Lockheed Martin and the Israeli Elbit Systems. Of course, the change in the privatisation strategy must also be approved by the Minister of Defence Nikolay Svinarov who promised a year ago that Terem would be sold by the end of his mandate.As to Vointech, its privatisation was interrupted on January 25, just a few hours before the scheduled tender for the sale of 100% of its capital began. The reason was a distraint order issued by the Slivnitsa Regional Court in a case between Vointech and the Sofia-based Metron Engineering owned by Todor Rankov, Markar Shirinyan and Constantinos Dupas. The two companies initiated legal proceedings because of a 4 dka real estate in Sofia - Metron Engineering possesses restitutional notary deeds for the ground and wanted to start constructions on it, while Vointech blocked its plans. However, the ground is not included in the company's valuation. That is why legal experts note that the argument in question is not a reason to stop the privatisation procedure.Vointech is the military company that owns the biggest number of real estates. The list includes shooting grounds, ranges, administrative buildings, and sports halls in the biggest towns of the country. Many of them were sold as separate parts in the past two years and a half. The company itself has long operated at a loss. For the first three quarters of 2004 that loss amounted to BGN2.2MN.In 2005, the Privatisation Agency plans to sell Teraton, Kintex, and Vazov Machine Engineering Plants. All of them are of importance for the national security and their privatisation strategy should be approved by the National Assembly as well. One thing is certain so far - 20% stakes of the capital of both the Vazov plants and Teraton will be traded for non-cash instruments of payment.The Sopot-based Vazov Machine Engineering Plants produce shells and missiles and lately - household products, too. The company owns production grounds spreading over 8.4 million sq m. According to information from the Privatisation Agency, it recorded a BGN74MN loss in 2003.The famous Kintex armoury should be sold to private owners in 2005, too. The sale strategy is now being coordinated with the Ministry of Economy. The company owns buildings that occupy 12,235 sq m. Thanks to its major activity, arms import and export, Kintex is among the few that make profit in the defence complex. In 2003, its net profit was nearly BGN11MN (with a turnover amounting to BGN139MN) and for the first quarter of 2004 it reached BGN627,000. Far scantier is the information available about the financial condition of another branch company, Teraton.Considering the past experience, the sale of these three companies will not be easy, either. The only consolation for the rulers is the fact that the end seems to be coming nearer. With Kintex, Teraton, and the Vazov Machine Engineering Plants sold, the Kazanlak-based Nity company will remain the only one on the privatisation list. The historical divestment of the military complex will finally come to an end. What the profit from that privatisation will be is another question.

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