Банкеръ Daily


Do not wake up “dormant” shares

Establishment of a special investment fund which will include the "dormant" shares from the mass privatization if people do not search for them and do not start trading with them.

This is envisaged in a draft Law for settling the relations concerning the personal accounts for dematerialized securities, present in the central register of securities, kept by Central Depository AD. This idea was also enshrined in the concept of personal accounts, which the Ministry of Finance presented for public discussion in January last year. The proposal was sharply criticized and rejected, which gave the impression that it would disappear, like many others, somewhere in the archives. But this has clearly not happened. And during that time a bill was developed, which, in the middle of May 2020 surprised us.


However, the implementation of this intention violates a number of national and international acts determining


the inviolability of private property.


The envisaged mandatory transfer of shares to investment intermediaries is also disputable to some extent, as it creates an obligation for the shareholders to pay fees to public companies.


During the mass privatization about 3 million Bulgarians received free shares from the companies they worked in, as well as voucher booklets with 25,000 investment bonds each. Some personally participated in the privatization of the proposed companies,  others contributed their bonds to the newly established privatization funds.


Currently, these securities are held in 2.5 million personal accounts in "Register A" of "Central Depository" AD, which means they are not managed by investment intermediaries and are not active - they cannot be traded on the stock exchange. The holders of the 25 shares in question (that was the face value of one voucher book) are 60% of all those who have accounts.

The rest hold 50 to 100 shares, which is the case when, for example, the whole family has transferred their vouchers to one of its members.


The value of these securities is estimated at BGN 2-3 billion at face value.


According to the Central Depository, about 26% of the shares of public companies traded on the BSE are currently "dormant". The institution regularly received letters from holders of such assets or from their heirs requesting their BGN equivalent to be paid. However, the depository institution cannot execute them because it does not have such competencies - it only keeps securities and reflects their transactions.


With the bill, related to this process, the government now intends to activate the holders of securities that are admitted to trading on a regulated market, including those from mass privatization, to encourage them within one year after the adoption of the law to take action to transfer their securities from personal accounts in "Register A" to sub-accounts with an investment intermediary - in "Register B". In addition to shares of public companies from mass privatization, "Register A" keeps accounts for shares of non-public companies from mass privatization, as well as of all other non-public companies with dematerialized shares. A curious question is whether anyone thought that "Register A" includes also shares that are owned by citizens of other countries. How will they be activated?


Another fact is not to be neglected: many shareholders have forgotten about these securities or are no longer alive, their heirs are rather unaware of this home "wealth” whose transfer is associated with considerable costs. In addition - even a glimpse at the BSE trade shows that it is stagnant, and since the beginning of the year the main index SOFIX has lost 20% of its value. And what, in that case, makes the stock market attractive?


It’s true that  in this case we are talking about


activating the interest of the holders of these securities.


But it is also their right to become more active or not. It does not seem particularly fair to force citizens to transfer their shares and end up not receiving anything, but they have been "inflated" with false promises to act.


These securities are mostly owned by small owners who do not trade them or have not sought their dividend for a period of five years. But it is also true that most companies paid dividends in 1998 only and then forgot about their "mass" shareholders.



The measure proposed in the bill is explained by the desire to support the capital market in our country. The change would mainly activate the small shareholders in the former privatization funds, which were later transformed into holdings. Out of the 81 companies licensed in 1996, there are now about 30 left on the BSE and several of them pay dividends.


According to the bill, within one year the shares in the Central Depository can be transferred (at the choice of the shareholder) to personal accounts with an investment intermediary ("Register B"), to be sold or inherited.


But there is another catch in the scheme.


Within two years after the transfer of the shares to an investment intermediary, the latter will not collect fees from the shareholders. If after this period the investor does not "activate" his securities, he will have to pay a fee for having shares.


Unclaimed shares would be transferred to a licensed investment fund (without the express consent of the owners), which would manage them on their behalf. And this will probably not be free.


More interestingly, the investment fund will be able to exercise without restriction all rights to the shares transferred to it, including the right to vote, dividend, liquidation quota, the right to pledge, borrow and sell them. All this violates the rights of the real owner and reeks of speculation.


People will be shareholders in the fund for five years. However, they will have the right to request the repurchase of their stocks (equivalent to the shares they hold) no earlier than one year.


The most interesting item. The amounts due for the partitions held in the Special Fund, which have not been searched for in these five years, will be deposited into a special open cash account. In case a person does not seek the money for another five years, it will be put into the state budget. The same procedure will refer to the dividend. If not sought, the amount will replenish the company's "Reserves" fund. But the person remains a shareholder and reserves the right to dispose of his shares.


A question also arises: who can guarantee that there will be interest in the stocks of this investment fund and whether they will be profitable given the fact that they will be traded on the stock exchange?


And how will the "outpouring" of shares for BGN 2 billion stimulate the activity of the BSE and cause a rise in the price of shares? This seems to contradict economic logic. What’s more, a price collapse should be expected.




Employers and trade unions are against


Trade unions and employers' structures do not support the draft law and insist on its withdrawal. This became clear after the National Council for Tripartite Cooperation a week ago. CEIBG expressed the opinion that the submitted draft needs to be amended.


The state demands the shareholders be activated


The bill proposed by the Ministry of Finance to settle the relations concerning the personal accounts for dematerialized securities kept in the central register of securities by Central Depository AD (the so-called "dormant shares" from the mass privatization) aims at identifying the owners of dematerialized shares and activating them as shareholders with maximum simplification of procedures and minimum costs." This was stated by Deputy Minister of Finance Marinela Petrova at the meeting of the National Council for Tripartite Cooperation.

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