Банкеръ Weekly

Briefs

RENAISSANCE FOR THE BANK ASSETS MARKET

The number of Bulgarian state-run banks, purchased by foreigners, increased by one more in 2002. The Government marked a success of the privatisation process by the sale of Biochim Commercial Bank. In October 2002 Bank Austria paid EUR82.5MN for 99.9% of the state-owned credit institution's assets. In fact, this was the only divestment deal, effected by the incumbent Government, that can be doubtlessly qualified as sucessful. With Biochim's sale the number of state-run banks whose assets were acquired by foreign capitals became six: United Bulgarian Bank (UBB), Bulgarian Post Bank, SG EXPRESSBANK, HEBROSBANK, BULBANK, and Biochim. DSK Bank, for which the Bulgarian Consolidation Company (BCC) has invited a tender and is presently collecting letters of intent from candidate buyers, will join them in 2003.After the sale of DSK Bank, more than 90% of the Bulgarian finanacial and credit sector's assets will be in foreign hands, and privatisation in the bank branch will be completed. Simultaneously, another much more attractive sphere of the finance business - purchase and sale of bank assets - has been developed in Bulgaria since 2000. Four big deals were closed on that market in 2002. In the beginning of January Emil Kyulev's ROSSEXIMBANK (which had acquired the failed MINERALBANK in 2001) purchased also the assets of BALKANBANK (declared insolvent in 1997), undertaking to distrubute among its creditors BGN17.14MN. Thus, the bank chaired by Mr. Kyulev became one of the biggest holders of corporate debt in Bulgaria. Mr. Kyulev himself claims that the corporate liabilities controlled by ROSSEXIMBANK exceed BGN1BN. Among them are the debts of Balkancar Holding and its subsidiaries, inherited from BALKANBANK.However, Central Cooperative Bank (CCB) was the most active on the financial assets market. It acquired three failed banks within a year. In July 2002 CCB paid BGN4.12MN for the assets of Dobroudjanska Bank, declared insolvent in 1997. CCB's offensive continued in the autumn of 2002 when it acquired Credit Bank - Multigroup's financial institution, adjudicated insolvent in 1999. CCB promised to distribute BGN16.16MN between the citizens and companies, whom Credit Bank owed about BGN22MN. In its essence the deal was considerably different from the other operations for acquisition of bankrupt banks' assets. CCB was practically only a meditaor of Sasho Donchev's companeis Overgas Inc. and Overgas International, whom Credit Bank owed around BGN21MN. In the sale contract it was explicitely written that CCB would settle Credit Bank's liabilities to its creditors by transferring to them the assets of Multigroup's financial institution. The bulk of Credit Bank's assets became the property of the firms, run by Sasho Donchev. Thus, he gained powerful trumps in the court war with Multigroup's President Iliya Pavlov.After the completion of the deal on Credit Bank, the member of Chimimport's Supervisory Board Ivo Kamenov said in front of the BANKER weekly that the chemical company and CCB were interested in all bankrupt banks. In end-November CCB filed a bid for the purchase of Bulgarian Agricultural Bank (BAC), offering to distribute BGN9.05MN among its creditors. On the eve of the Christmas holidays the BNB approved the deal and during the first working week of 2003 the court will give a permission for closing the deal. Thus, CCB will lay a hand on BAC's receivables exceeding BGN150MN. Among BAC's biggest debtors are: Bulgarleasing, which owes more than BGN10MN; Agropromstroy AD, with debts exceeding BGN40MN; the firms of the bank's former owner Atanas Tilev, whose liabilities are BGN14MN-plus, and the companies within the Orion group, whose debts exceed BGN25MN.The interest of CCB and Chimimport is directed mainly towards Mr. Tilev's liabilities, as their settlement could be traded against shares of BAC's former owner in the Vitosha insurance company. Chimimport has been interested in that player on the insurance market for quite a long time, and since mid-year has been holding negotiations with Mr. Tilev for buying it. And after acquiring BAC, CCB will hold much more trumps that could be played in the bargaining for the insurer Vitosha.The year 2002 witnessed impressive clashes in the sector of state finances as well. The Cabinet of Premier Simeon Saxe-Coburg-Gotha effected in March and September 2002 the first swap deals for the exchange of Brady bonds against new government securities. As a result Bulgaria's Brady debt decreased by more than USD2.19BN, from USD4.5BN to USD2.31BN. The State issued new long-term government securities worth EUR835.47MN and USD1,272MN. Accoring to the Finance Minister Milen Velchev and his deputy Krassimir Katev, the overall effect of these two swaps is a reduction of the Brady debt by USD190MN, and more than USD1BN will be saved from servicing it over the next nine years.UDF, however, belives that the two swap deals have inflicted losses to the State. When the first deal was effected - in March 2002 - they even appealed to the Constitutional Court, claiming that the ratification of agreements between Bulgaria and the mediators in the deal - the investment banks JP Morgan and Citigroup/Salomon Smith Barney, is in violation of the Bulgarian Constitution. UDF's appeal was rejected by the Constitutional Court. Nevertheless, the questions regarding the effects of the two swaps remained. UDF's main motive for claiming that the deals inflict losses to Bulgaria is that the Government has swapped Bradies with a floating interest, based on the London Interbank Offered Rate (LIBOR), for long-term securities with a fixed yield: 7.5% for the Eurobonds and 8.25% for the USD-denominated bonds. And so far international markets confirm the apprehensions of the swaps' opponents, as in 2002 the LIBOR went down from 2% in January to 1.4% in end-December.The year 2002 was one of the most dynamic for the banking and financial sector. And the new 2003 is expecetd to be still more interesting. Afterpurchasing the failed BAC, CCB will file bids for for the insolvent Balkan Universal Bank and CAPITALBANK. THe BNB will have to decide whether it will licence the newly-establsihed West East Bank.Naftex Bulgaria Holding should be establish itself as the owner of EUROBANK. And Festa Holding expects the central bank to lift the questorship from NEFTINVESTBANK, which has been renamed to INVESTBANK, and permit it hold 60% of the credit institution. In other words, layers in the Bulgarian banking system will continue to adjust in 2003.

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