Банкеръ Weekly



Companies with special investment purpose are public companies with capital amounting to at least BGN500,000. According to the regulations of their activity adopted last spring, at least 30% of this capital must be owned by institutional investors - banks, insurers or pension funds. This kind of company may have from one to fifty founders. Yet on their first meeting, founders should vote for issuing rights for further capital raise by at least 30 per cent. (Rights are a special instrument which acquisition enables other investors to buy shares, too). They must be sold in public and the founders of the special company enjoy no privileges. This will provide each investor willing to become a shareholder in the firm with equal access to its capital. Special purpose companies get their licences from the Financial Supervision Commission along with an approval of the catalogue for obligatory raise of their capital by 30 per cent. When applying for a licence, the company needs to provide information about all the people who control more than 5% of its shares. These people need to declare where their money comes from and also to prove they have paid all taxes due for the past five years.The Bulgarian-American Credit Bank (BACB) paved the way in a new business - that of companies with special investment purpose. In early September, the bank and its owner - the Bulgarian-American Enterprise Fund, established the first company of this kind in Bulgaria and called it Capital Direct 1.Special companies may become an important element in the establishment of a completed financial group. Until now, bank holdings only included a credit institution, an insurer and a pension insurance company. With the adoption of the Law on Companies with Special Investment Purpose (published in the State Gazette on May 20, 2003), the scheme will be completed by companies specialised in the acquisition of receivables or investments in real estates. This is the so called assets securitisation - a mechanism that turns acquired debts or estates in securities and then sells them to the public. In fact, the complicated term hides the main purpose - to make everybody participate in these markets, explained one of the authors of the law, the MP Miroslav Sevlievski.In the case of the company owned by BACB that will invest in debts only, investors will acquire part of a portfolio of estates or receivables. A non-professional player will hardly take up its management. Of course, even without the special law everybody can establish a company to invest in these assets. However, special companies have two priorities over ordinary companies which invest in estates and receivables. First, they are under the jurisdiction of the Financial Supervision Commission and can only be established by outstanding investors. Their authority would make the public more confident in the intentions of the founders. Besides, special companies are privileged to pay taxes in a scheme that prevents their shareholders' income from double taxation. This is the other temptation alluring financial institutions to think of establishing special purpose companies.However, the tax exemption of these companies was not regulated with the adoption of the law. Still, Ralitsa Again, one of the authors of the law and a member of the parliament, said that the problem had been discussed with the Ministry of Finance and the ministry had agreed that some amendments to the tax legislation should be made in autumn. Special purpose companies will be exempt from taxes and only the dividends to their shareholders will be assessed. This is the usual practice all over the world which explains why these companies are so attractive to the investors. If there is no special tax regime, there is no point in establishing this kind of overregulated companies.Another significant reason that might tempt banks to establish such companies is the opportunity to profit immediately by the future income from borrowers and credit card holders. They only have to sell their receivables to the special purpose companies in return to a contracted discount of their price. Thus banks will get refinancing and will cut their administrative costs. If banks establish this kind of companies, they will be able to share with a number of investors the risk of potential insolvency of their customers. Moreover, they will receive income as shareholders in the special company. If banks adopt such strategy, they can fire many of their officers in problem credits departments, because their work will be entrusted to the special company. That's a way for the institutions to get rid of potential problems related to protracted legal proceedings against improper debtors.The participation of banks in specialised companies also expands the investment opportunities. For example, they can avoid the requirement for limited investments in real estates which should not exceed 50% of a bank's net worth, according to the Bulgarian National Bank (BNB) rules.Investment intermediaries will be able to profit, too.Special purpose companies are allowed to take loans and to issue bonds, which means that their investments will not be restricted by the amount of the shareholders' equity. For example, Capital Direct 1 is planning to acquire receivables ranging from EUR5MN to EUR10MN and to issue bonds in return.According to the legislation, however, specialised companies are not allowed to do any direct economic activity. They have to sign an agreement with the so called serving company which is specialised in the respective branch and have to pay for the service. Serving companies are exactly the part of the scheme that will provoke much interest. Even for the only reason that some of them will provide the efficient collection of receivables from the debtors.The law has no specific requirements towards the serving companies. Still, their activities will be closely watched by the Financial Supervision Commission. The law stipulates that at least 90% of the two types of special companies profits should not be capitalised but distributed as dividends. This will make these companies more attractive for investors and investors will be confident they will be paid the accumulated profit from their investment every year.

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