Банкеръ Weekly



If Bulgarian stock traders believed in Santa Claus, they would probably have tired him with boring wishes: I wish I could trade in futures on the Bulgarian market, buy shares of the Bulgarian Telecommunications Company in return for compensatory notes, see blue chips coming out on the stock exchange. All these wishes have remained unchanged and unfulfilled for many years. Still, every time Christmas is coming they seem to have become more realistic than they were in the past. Futures trading is still a mirage, yet the purchase of BTC shares in return for compensatory instruments should become possible in just two months if everything goes well for the consortium that is going to sell them (it includes United Bulgarian Bank (UBB), Bulbrokers, and the National Bank of Greece Bulgarian branch). Trading in real blue chips on the Bulgarian Stock Exchange (BSE) looks unreal, too, but it is also true that the first initial public offering (IPO) was made in 2004. It means that companies are starting to realize how much they can profit by being traded on the stock market.The first initial public offeringThe company which dared make the first IPO in Bulgaria is Investor.BG. It raised its capital to BGN599,700, up from BGN280,000 last summer. Investor.BG is a hi-tech company that owns three websites - investor.bg, start.bg, and tialoto.com.Then another IPO followed. It was carried out by the unknown Interlogic Estates company which is part of the Interlogic international economic group established by Georgios Sterianopoulos. The group involves companies from Greece, Cyprus and Bulgaria and operates mainly in the field of financial services, but also in the software, real estates, and security systems business.That's how the most difficult part - the foundations, were laid. And there are many who want to follow the example. A month ago, the BBB Group General Manager Victor Zarev declared that his company was planning to come out on the stock exchange in May 2006. In fact, one of the main problems of the Bulgarian capital market is exactly the absence of attractive companies that could draw the investors' attention. That is why a strategy for development of the capital market until 2007 was prepared on the initiative of the BSE. The market will have to attract perspective companies to replace those that were forced to enter the public register and started writing off (fourteen companies did so in the past 12 months). The trend will continue next year. In 2005, two companies included in the calculation of the SOFIX market index - LUKoil Neftochim and Petrol, will be taken out of the stock trading. Companies in the tobacco holding may follow them if they can finally be privatized (or liquidated). But in that case, if no good substitutes appear, the stock market will go close to the critical minimum.Fortunately, some of the companies neglected so far started to gain investors confidence and draw their attention. Among them are the former privatisation funds that made a sensation in 2004. Their shares were among the most profitable ones, they reported an unprecedental growth which did not result from speculations alone. That is also confirmed by the fact that the funds were nominated for best corporate management for the first time. Some of them top the ranking in terms of transactions signed and will automatically make their way to the new BG-40 market index which is to be calculated as of the beginning of 2005.The new indexThe only criteria that will put companies in the BG-40 index calculation is the number of deals signed. As it is seen from its name, the index will include forty companies. The BSE Indices Commission will gather every six months in order to update the list of companies. The BG-40 base value will be 100. The methodology of calculation was taken from Dow Jones Industrial Average.Mutual fundsBG-40 will be a market reference point not only for the current market players, but also for open investment companies that are gradually redirecting to the BSE. In 2004, three new companies of the type appeared - Advance Invest, Capman Capital, and Pelikan (the only one with a 100% foreign capital). Earlier, investors were only able to choose among Golden Lev, Elana Eurofund, and TBI Eurobond. It means that the number of these companies has doubled within a year. In 2005, they may also be substituted by mutual funds that operate with the same methodology but are established on a contract basis and not as legal entities. That will happen when the amendments to the Public Offering of Securities Act are adopted. There is no doubt that such funds have a ground for development in the country. Currently, open investment companies manage assets worth no less than BGN25MN. If we add the assets run by foreign mutual funds that operate in Bulgaria, their value will exceed BGN50MN. However, that is just 0.1% of all savings (amounting to some BGN15BN). For comparison - in countries such as the Czech Republic, Poland and Hungary, the share of savings invested in mutual funds is 7 per cent. The main reason why Bulgaria is falling behind the other Easteuropean countries is probably the fact that the population is not so well aware of this savings opportunity.The disappointmentThe biggest disappointment for investors in 2004 were the companies in the structure of Bulgartabac Holding. The collapse of their shares prices seems to have had a sobering effect on the players who had forgotten there were always risks on the stock market. In fact, it's exactly the situation of the tobacco plants that forced the market to adopt the European tradition of discontinuing trade in shares that are expected to be subject to important news. The aim is to enable all market participants get familiar with the new circumstances. The trade in Bulgartabac shares ceased on July 1 and 2 because of an important meeting of the holding supervisory board that was coming (at which the sale of four cigarette plants was decided). It was once again discontinued from 4 to 15 November following an announcement that British American Tobacco submitted an offer for a stake in Sofia BT and Plovdiv BT but the seller, the Privatisation Agency (PA), wanted explanations about the application. Other reasons necessitated the temporary suspension of the trade in shares of MG Elite Holding and Bulgarian Bergman.The surpriseThe compensatory instruments that celebrated two years on the stock exchange turned out to be the biggest surprise in 2004. Although the Financial Supervision Commission did not acknowledge them as securities in which pension funds and investment companies could invest, they became one of the market hits. Their holders will remember the ending year with the prices they had hardly dreamt of - 82% of the face value. The rate was attained after the announcement that 35% of the capital of BTC would be sold against compensatory instruments. Some experts are already predicting that the price of these instruments may reach and even go beyond the BGN1 face value next February, right before the last state-owned shares in the telecom are offered.

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