Банкеръ Weekly



When you can't help yourself alone, even God cannot help you! This old saying is fully applicable to the present situation on the Bulgarian capital market. In end-June Amendments to the Public Offering of Securities Act were enforced, stipulating that the capital of public companies could be increased only by initial issue of trading rights. Those who are acquainted with the rules can definitely profit from such operations. The rest, however, won't feel that the Parliament has voted additional protection of minority shareholders' rights. The idea is certainly good for companies like Sopharma and LUKoil Neftochim whose shareholders are professionals in the trading of securities. And these companies' shares don't lack investor's interest either. The law, however, is of no help to companies which shares are not actively traded on the stock exchange. In these cases the best part of the minority stake is owned by the plant's employees. And when the question is about subscription for capital increase or any other corporative event, these employees most often have no idea what is going on.A fresh example is the launched on Monday (October 7) trading of the rights of the Svishtov-based chemical plant of Sviloza, which were issued as a preparation for the sixfold increase of the company's capital. So far no purchase or sale offer for the rights has been registered on the Bulgarian Stock Exchange (BSE). For each share the owners received one right which enables them to right down six shares from the capital increase. The other option they have is to simply sell their rights on the BSE. In order to do this, however, they will have to be less active and also find buyers for their rights. This week proved there are no willing either to sell, or to buy. It's clear that those Bulgarian companies which are attracting the interest of big investors are no more than about ten and Sviloza is definitely not among them.It turns out that in fact the shareholders of the Svishtov-based plant cannot sell their trading rights even if they are clearly aware of the conditions under which the capital is increased. The only thing they can do to preserve their stake from evaporating is to take part in the subscription and buy new shares at BGN1 each. Yet, in such a case they risk falling into a liquidity crisis as there will be no one to resell their shares to. Thus, they will freeze their money for a long period of time with questionable return at that. In spite of the plant's recent fair financial performance, so far there are no investors willing to buy its shares. Such an operation would make sense only if a tender offer to delete the company from the register of public issuers is on its way to be prepared. In such case the net value of Sviloza's assets will have certain influence on forming the price at which the majority owner A.R.U.S., registered in the American state Delaware, will buy out the stakes of the other shareholders. According to Sviloza's balance sheet by June 30, 2002, its net worth was BGN30 per share. Naturally, this ratio will drop considerably after the capital increase (up to BGN5-6 per share) for the simple fact that the new shares' issue value is far lower that the balance value. So, the price of an eventual tender offer of BGN2-3 per share is absolutely attainable.October 23 is expected to be the only day when there will be stronger interest in Sviloza's shares. A closed auction will be held then, at which all the unused by that date trading rights will be automatically launched. Thus, if anyone owns Sviloza's shares and is willing to participate in the capital increase, he will have to do this by October 22. On the next day it will be too late - his right might be purchased by someone else even at the minimum price of BGN0.01. Exactly this is expected to happen on October 23. Because if the interest in the trading rights is confined only to A.R.U.S., then it's clear that the American offshore company will try to buy out at the cheapest.So, no matter whether there is a new law or not, the chances to profit from illiquid shares are slim and are dependent on the goodwill of the majority owner. Obviously, amendments to regulations prove sensible only when applied to big companies. Everyone remembers the scandals in 2000-2001 regarding the capital increase of Sopharma and of the affiliate plants of Balkanpharma Holding.

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