Банкеръ Weekly



After tiresome two-month lobbying, whose culmination was last week, on February 21 the MPs finally approved the Privatisation and Post-privatisation Control Act. They also voted a principal decision to forbit the renegotiation of already closed deals. Thus, the defenders of the present owners of divested enterprises suffered a setback, which would certainly lead to a new phase of restructuring the industrial property in Bulgaria. The management-employee buyout companies (MEBOs), set up in the last few years, are seriously endangered. Many of them cannot even pay their rescheduled installments, let alone fulfilling investment programmes. Other new owners will face difficulties, too. The Privatisation Agency (PA) is currently checking the fulfillment of the commitments on the part of Finmetals Holding under the contract for the privatisation of the iron and steel works Kremikovtsi. The managers claim that BGN140MN (from the promised investments of USD300MN till end-2005) has been invested so far. However, this information will be confirmed or renounced in two-three weeks.But it is already known that after the divestment of the fertilizer manufacturer Chimco of Vratsa in July 1999, its liabilities have not decreased. On the contrary, they went up from BGN74.5MN to BGN102.5MN. Last year the US offshore company IBE Trans of New York transferred Chimco to a new owner - the Cypriot AVST Trading. Several more deals in the enterprise's shares were effected afterwords. The last of them - the sale of 15% of Chimco's capital - was undertaken this week, but was cancelled by the Central Depository due to a distraint, levied on the Cypriot company's stocks.This is not an isolated case. Most of the armour works and dozens of enterprsies in all other sectors can be included in the shortlist of unsuccessful privatisation deals. They do not stand much chances of surviving, and after being deprived of the opportunity to renegotiate their deals with the PA will certainly fall into a decline.Practically, there is nothing wrong with mass-scale bankruptcies, because they are not connected with decommissioning of enterprises, but with the sale of their assets to a new owner, who is supposed to manage them better. The same could be said about nationalization of companies due to unfulfilled privatisation commitments. The question is how quick the change of property would be effected. The examples we have (the Varna Shipyard, Vidachim, Balkan Airlines) are indicative of procedures lagging on for months and in certain cases for years. Meanwhile, a considerable part of the production capacities are destroyed from idling. This problem could be settled by amendments to the Commercial Code, which have been already drafted by an expert team from the Ministry of Economy. Another serious danger when revoking privatisation deals is the uncontrolled plundering of the enterprises in the last months prior the contract's revocation. The majority shareholders will be certainly most active then (if they have not already plundered the enterprise), knowing that they will be leaving the management of the company.The retaining of ownership on the troubled enterprises can mean only one thing - prolongation of their agony. Neither the PA, nor the ministries can rely till the last moment that the MEBOs or the other pseudo-investors would find money or more reliable buyers of the property. Therefore, it might be really better not to revise closed deals. But in order to limit the possibilities for misappropriation in cases of nationalization, some other measures should be taken in addition to amending the Commercial Code in its section on insolvency. The draining of companies could be limited by passing a law on transfer pricing or restricting the application of the so-called contracts for external services by charging one-time tax on then, for example. Of course, these measures would not stop the draining of companies on the part of their leaving managers, but will render the process more expensive.

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