PA DISREGARDS COMPETITION PRINCIPLE IN SALE OF SOPHARMA'S STATE-OWNED PACKAGE
Levon Hampartsoumyan's employees finally realized they could earn something from Sopharma, after since last January the Privatisation Agency (PA) seemed to have forgotten about the pharmaceutical company's state-owned package. Surprisingly enough a contract was signed last week with Bulbrokers, the financial house, that will act as intermediary in the sale of 153,875 enterprise shares, to be offered on the stock exchange at an initial price of BGL2.50 apiece. The stocks will be floated on Wednesday, June 6, and the broker has undertaken to sell them by September 6.
The procedure for nominating a broker began in the end of 2000 and the applicants had to submit their offers within a short term. On January 8, 2001, the PA picked Bulbrokers as a mediator. According to well-informed sources, the financial house then offered a price of BGL12.50 per share. On the same day the general meeting of the Sofia-based pharmaceutical company approved a decision that shareholders who had been listed in the registers by January 8, 2001, would be entitled to participate in the projected capital increase. In that way, however, the sale of the state-owned package was stultified, because whoever bought the stake would not have the right to participate in the capital increase. Thus, the number of stocks remained the same - 153,875 - but the package did no longer represent 18.22% of the company's equity, but only a 2.56%.
In that way, the State lost more than BGL2MN from the depreciation of its stocks in the pharmaceutical enterprise, which were quoted at about BGL13 per share before the increase, and the issue price was BGL1 apiece. However, the State was not the only loser from the procedure, organized that way. The other small shareholders also suffered indirect losses, as the stake of the majority shareholder Elpharma reached 89%.
With regard to those important changes it would be normal for the PA to invite a tender for a new broker of the shares. After a 5-month silence, the PA finally closed a contract with Bulbrokers, at that the selling price was 5-fold lower than the one offered in January. Such a decision would be justifiable under exceptional circumstances, as they were in the beginning of this year. Currently, however, Sopharma's quotations on the stock exchange are all-time low. Although the pharmaceutical enterprise's paper is offered at BGL1.99 per share there is no demand. Anyone could guess what would happen if more than 150,000 shares are suddenly floated on the market.
For sure there would be competition if a new tender for a broker was invited. There were three more bidders at the previous auction. The contenders of the winner Bulbrokers were: Municipal Bank, Aval In, and First Financial and Brokerage House. The curious fact is that winner, Bulbrokers, offered the lowest price then - BGL12.50 per share. The offer, placed by First Financial and Brokerage House, was a little higher, while the other two bidders offered more than BGL40 per share. PA's representatives then suspected that Municipal Bank and Aval In would play in favour of Elpharma by postponing the sale of the package.
The choice that was made some month ago hardly has anything to do with the present reality. Even Bulbrokers Manager Ivan Nenkov admits that the finance house has not yet found a candidate-buyer for the state-held shares. He said he was surprised by PA's recent proposal to sign a contract with his company after so much time has elapsed since the auction. Anyway, it is not very likely to become clear if this is true or the financial house is not indifferent to the future brokerage it will charge on the deal.
Stock exchange analysts are positive that the present moment is disadvantageous for the sale of Sopharma's paper for yet another reason. The conflict regarding the use of the state company Pharmachim's trade marks has influenced adversely all enterprises in the branch. Although it is soon expected to be solved in favour of Sopharma, it would be difficult to regain investors' confidence in the breathless local capital market.
Otherwise, the pharmaceutical enterprise's financial results are very good. In 2000 the company posted a profit of BGL14,449,000 and BGL73,500,000 in proceeds. The Executive Director Ognyan Donev announced that the enterprise increased its sales by 31 per cent in the first three months of 2001. All this shows that investing money in Sopharma is a risky venture, but the profit rate may turn out quite high.