Банкеръ Weekly



The companies, which have invested in the state-owned venture capital fund for small and medium-sized enterprises, will be able to register for payment of taxes in offshore zones. The news was broken to the BANKER weekly by Nikolay Mirchev, adviser of the Deputy Premier and Minister of Economy Nikolay Vassilev. According to Mr. Mirchev, such a preference would encourage a greater number of investors to take part in the establishment of the new structure. However, it is quite probable that the idea for offshore registration would again provoke political debates on one of the nine measures for economic stir-up, proposed by Mr. Vassilev in his speech to Parlaiment in October 2002. The official decision for setting up a venture capital fund was made by the Cabinet in mid-November 2002. It became a fact, although the IMF has several times expressed its reserves to the idea. The opposition then argued it was inadmissible for the NMSII to risk the taxpayers money in such ventures, as security is the underlying principle in public finances.The Cabinet has decided that the State's participation in the venture capital fund may not exceed BGN100MN, and the money would be ensured by the fiscal reserve. By the same decision, the Governments' share was limited to 50% of the capital, by which the new structure would be set up. A procedure for chosing a company to manage the fund is currently going on at the Ministry of Economy. The announcement for the tender was published in the end of 2002 in the prestigious Financial Times magazine and in several Bulgarian dailies. During the week it was also published in Wall Street Journal - Europe. The short announcement describing the criteria for the choice of a manager reads that the fund will be registered in Bulgaria and will invest in companies, entered in the commercial registers of our courts.Nikolay Mirchev told the BANKER weekly that by end-January all interested parties could get information prospectuses, describing in detail how Bulgaria contemplates the future structure of the fund. The second stage of the tender includes the period from end-January till February 20, 2003, which is the deadline for the submission of applications for participation. The applicants should also enclose proof that they have sufficient funds to invest and that they could successfully attract new investors. The optimistic scenario of Mr. Vassilev's team is that the fund will be set up with a start-up capital of BGN300MN. Practically, this means that the State wants to keep for itself one third. Candidate managers would increase their chances to succeed if they present explicit evidence of their high reputation on the market. The future manager should state in the offer the amount of the demanded fee and share of the profit. Afterwards, Mr. Vassilev will appoint a committee of experts to hold talks with the approved applicants. The final stage projects to shortlist the candidates, who will be invited to make a second presentation of their proposals and a binding offer for closing a contract.According to preliminary information, almost 40 companies have so far expressed interest towards participation in the competition. Most of them are foreign and have been directly sought by Bulgaria. Economic Ministry sources said that the information about the participation in the bidding of big investment banks, among which Citibank and JP Morgan, is not true. Several Bulgarian companies have also demanded a more detailed information about the terms of the tender. However, the chances of a local company winning the tender for the fund's management seem negligible. The reason is that one of the requierments to the candidates is to prove solid experience in that kind of activities.Meanwhile, some of the rules for setting up the Bulgarian venture capital fund became clear. It will invest mainly in small and medium-sized enterprises with a personnel of up to 1,000 people. The smallest investment in share participation is projected at BGN1MN, and the largest investments will be limited to BGN15MN. The only industries banned for investments will be the production of arms and spirits. According to inofficial information, it is quite possible that when closing the contract for management Bulgaria would include a clause, limiting the purchase of shares in monopolies, such as Bulgartabac and BTC, if part of them are launched for privatisation on the stock exchange. Judging from the initial version for the funds structure, it will have a two-tier management system. The so-called Management Committee (which will play the part of a management board) will include the manager and the other investors, attracted by it. This body will have the final say on the financing of projects, proposed by the manager. The significance of the individual investors' votes shall be agreed between them and it's quite probable that it would be proportional to the invested amounts. A curious detail is that if the State eventually becomes a majority sharehodler, it will give up its right of veto on the decisions. This should clear up suspicions of a political meddling in the management of money from the fiscal reserve, invested in the fund.A Supervisory Board will be keeping an eye on the observation of undertaken commitments by the company, managing the fund. The Ministry of Economy has given up the idea that the fund would be issuing debt instruments at a later stage. If a capital increase is necessary, new investors will be invited.As it appears from what has been said so far, the venture capital fund is gathering speed despite its numerous opponents. However, too much optimism would be hardly justifiable. It has long ago been proven that the State is a bad master. Let's hope that serious investors would turn up, unless a new legislative trap stops them.

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