Банкеръ Weekly



The government of Simeon Saxe-Coburg-Gotha kept its word and introduced state guarantees on bank loans to small and medium-sized enterprises. The rulers are now thinking over a new scheme that would stimulate investments in the small business. The new rules will be described in a Law on the risk capital which is being prepared by Valeri Dimitrov, Chairman of the Parliamentary Economic Committee, and his colleague, Ralitza Again. Together with other three experts, they went on a two-week visit to the USA in end-June.Obviously, the American experience in financing high-risk enterprises will be widely applied in Bulgaria. The law will regulate the activity of funds especially created to invest in small and medium-sized companies. In the US, only institutional investors - pension funds, insurance companies, commercial banks, can hold shares in these funds. Therefore, the funds will not be public companies and their shares will not be traded on the stock exchange. In the United States the state issues bonds in return to each dollar collected by risk capitalists. These bonds provide their buyers with a return exceeding by 2 points the interest rate on US Treasuries. Besides, holders of these bonds do not pay taxes on their returns from the securities. The revenues from the sale of these government securities are lent to risk capital funds which support their customers. The state in turn receives from the risk capitalists return exceeding the bonds yield. If the interest on Treasuries is 5%, the risk premium is 2%, and the government yield - 3%, then the funds' expenses for attracting state money will total 10 per cent. However, the last 3% go to a special guarantee account which serves to cover losses in case that any of the risk companies goes bankrupt. Consequently, at least in the US, the state rarely suffers any losses. Whether such safety will automatically occure in Bulgaria is not quite certain.If the programme for state guarantees on investments in private companies is also adopted by the Ministry of Economy and the Ministry of Finance, the supervision will most probably be entrusted to a newly-prepared megacommission for non-bank financial sector supervision. The control over risk financing in the USA is entrusted to the small business administration. However, Bulgaria's Small and Medium-Sized Enterprises Agency is unlikely to be given this right because of the lack of sufficient qualified staff. The state interest should be protected by well prepared professionals in the field of finance.The MPs are promising to create extremely strict rules for financing small companies from the risk capital funds through acquisition of stakes of their capital. The funds themselves will need to get a license. The authors of the law do not expect it to be adopted immediately. They hope it will happen by the end of the current year and the whole mechanism will begin to operate by the end of the first quarter of 2003.However, there are a number of questions about this initiative. One is whether or not the efforts and expenses for preparation of the law and for establishment of a new agency will become useless because of the insufficient financial background of the managers of small companies. Bulgarian companies are even not sufficiently interested in searching of other than bank financing, so the development of the stock exchange is separated from the real economy. The exchange has only registered companies that were obliged to register as their shares were sold through the mass privatization. Almost none of the 1,000 companies initially traded on the market profited by the market mechanisms to launch new share issues. Bulgarian entrepreneurs still cannot accept the truth that it would be cheaper for them to collect capital from the stock exchange. Maybe this is because they fear from the crash of numerous small shareholders and their pretentions. Companies that first stepped on the stock exchange - like ProSoft and some commercial banks, are quite few. And even they preferred to issue and sell bonds rather than shares that might give them some undesired partners. That's why currently existing risk capital funds that have collected certain amounts of money sometimes fail to find a place to invest them. Their money has supported companies such as the Sofia-based Florina juice-maker, Orbitel Internet supplier, Goody's restaurant chain, etc. But will the funds find a place to invest the money launched through the state-issued government securities? They could find one, if business in Bulgaria was growing dynamically. There are very few ambitious entrepreneurs now, however. They will only be interested if the state interference enables them to get financing at a lower price. The problem is how much this will cost to the budget.

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