Банкеръ Weekly



Slightly more than six months will be given to companies traded on the official segment of the Bulgarian Stock Exchange (BSE)-Sofia in order to meet the criteria of the new market regulation. If they fail to do so, they will be sent to the B unofficial segment which is being established now. The segment will include all companies whose shares are involved in less than five deals a month or whose deals are worth less than BGN4,000. Companies that have no good corporate management will be traded in this segment, too. There are 35 companies traded on the official segment of the market now. By year-end, when the new market regulation is expected to become valid, the layers of the capital market will change order.
At present, the new regulation of BSE-Sofia is waiting for approval by the Financial Supervision Commission. According to the commission's Deputy Chairwoman Dimana Rankova, this will probably happen in two weeks at the earliest. It means that as soon as the new rules enter into force (six months after the commission approves them), every month the stock exchange will warn companies that fail to meet the criteria that they will fall in a lower segment. If in the last, sixth, month preceding the entering into force of the new rules, the indicators of a company remain the same, the company's issues will automatically be sent to the B unofficial segment. The return to a higher segment will be possible as soon as the company meets the criteria and files an application, BSE-Sofia Executive Director Bistra Ilkova said.
According to the new trading rules, if a company wants to be placed in the official segment of the market, its shares should have been subject to at least 200 transactions worth BGN100,000 a month and the capitalisation of the issue should be no lower than EUR20MN for the A official market. So far, the criteria were twice lower. For the B segment, the criteria will be a BGN40,000 turnover and at least 100 deals a month, as well as a capitalisation of the issue of over EUR10MN. Companies that take part in the official segment must also have free-float: at least 25% for segment A and 10% for segment B. Currently, the average free-float of the companies is 10 per cent. This indicator will be calculated on the basis of information from the Central Depository and the companies majority shareholders. Besides, companies must have reported profit for at least two and three years in the past half a decade.
However, it is better for some companies to have a small amount of free-float. This will help them avoid having problems with some of the minority shareholders, because the currently operating Law on Public Offering of Securities provides them with much broader rights compared to the majority shareholders. Therefore, a person who holds 5% of a company can stop the one who controls 75% of the capital from conducting the trading policy he considers good.
According to the stock exchange April figures, only 20 companies will be traded on the official segment of all 35 traded at that time. According to Bistra Ilkova, there are companies that now trade on the unofficial segment but meet the requirements for the official one and considering the market figures, they are nine. The BSE Executive Director also added that by year-end all issuers who want to trade on the official market and meet the respective criteria will not be asked to pay a fee.
BSE-Sofia's new regulations would in no way hamper the capital market in the country, said Nikolay Kostov, Executive Director of First Finance and Brokerage House Asset management. He added that the presence on the official market influences the image of companies when they make their presentation to investors. Mr. Kostov added that a considerable part of the liquid companies are currently traded on the unofficial segment due to the lack of price restrictions for trading.
Anyway, the image of companies that will be moved to the unofficial B market will suffer in a way. Mr. Kostov added that investors are keeping track of the companies' results rather than the segment on which they are traded. The new rules of BSE-Sofia will have an effect only when there is a well-developed and sufficiently liquid capital market in this country.
The liquidity of companies and of the exchange in Bulgaria as a whole continues to be the most serious problem for the investment community. That is why the stock exchange seeks issuers who will make it more attractive to local and foreign investors. AT a meeting with representatives of BIBA on Tuesday (April 11) Ms. Ilkova said that 200 companies have been singled out and it would be a considerable success even if just 10% of them are attracted to the exchange. This year we have already witnessed a very good IPO of securities on the part of Bulgarian-American Bank. Another event, expected with great interest, is the registration of Chimimport of the exchange, which will be probably in May of June.
In addition to the new market segmentation, a decision of the issue regarding the divestment of the exchange could be expected by the year-end. It should keep its independence so far as to allow Bulgarian companies continue to trade here. At the same time, however, foreign investors should have a direct access to the securities, traded on the local capital market. Privatisation may turn out the decisive factor for overcoming the problems with liquidity and together with the new regulations for trade will make issuance of securities on the Bulgarian stock exchange considerably more attractive.

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