Archive for February, 2004

Bulgaria’s Privatization Agency Proposed to be Transformed into State-Owned Trade Company

Wednesday, February 25th, 2004

The Privatization Agency, currently a state administration body, is suggested to be turned into a trade company wholly-owned by the state. The transformation is provided by the proposed amendments to the Privatization and Post-Privatization Control Act, presented by Deputy Prime Minister and Economy Minister Lidiya Shuleva. The main reasons for such a decision are that the Privatization Agency who is currently in charge of both preparations for sell-off and the actual divestiture lack the capacity to handle the two tasks equally well and the preparation for privatization will be better performed by the respective ministers.

According to the proposed amendments, some of the duties assigned to the respective ministry will include determining the share to be privatized, the method for privatization and the requirements towards the potential buyers. The Privatization Agency itself will operate as a trade agent and will rake in a percentage of the revenues from finalized deals.

The suggestions concerning the Post-Privatization Control Agency provide for it to be authorized to outsource its supervising functions to private advisory or legal firms. The latter will be entitled to control the proper implementation of the privatization deals and collect receivables arising from contractual defaults. Among the proposals is the Post-Privatization Control Agency to pay them a percentage of the penalties and dues collected.

The Privatization Deal for the Bulgarian Telecom Signed

Monday, February 23rd, 2004

On February 20, 2004 the privatization agreement for the sale of the Bulgarian Telecommunication Company (“BTC”) was signed. The deal is expected to be the biggest in Bulgaria’s privatization history with an overall financial effect estimated at EURO 1.1 bln.

Bulgaria’s Privatization Agency and Advent’s subsidiary Viva Ventures signed the contract for the sale of 65% stake in BTC for EUR 230 mln. It provides for that Viva will raise BTC’s capital by EUR 50 mln, as well as will invest a further EUR 700 mln in the operator, EUR 400 mln of which within five years after the acquisition. The bidder plans to reduce BTC staff to 20,530 from some 24,800 by 2006. The US investment fund Advent International has pledged to remain an owner of 100% of Viva Ventures in the next three years.

A total of EUR 35 mln of BTC’s dividends for 2003 have been negotiated to go to the state now, as will be drawn from the company’s reserve prior to the sale. The contract also provides for the state to get another EUR 25 mln of the company’s 2003 dividend, after the official financial results are ready.

The issue of the third mobile operator licence award, which was a crucial condition for the finalization of the deal, will be solved by the Communications Regulation Commission (“CRC”). Following the signing of the contract the Privatization Agency will submit documents for the issuance of a third GSM licence to BTC to the CRC.

A problem with the third mobile operator awarding arose, although the GSM license was offered among the other parameters of the deal, following the recent adoption of legal amendments, under which holding a tender is the only way for issuing a license. The projected price of Bulgaria’s third GSM operator is to exceed BGN 200 mln should an open bidding tender be invited. Otherwise the award of the GSM license to Viva Ventures is set at BGN 54 mln.

Borislav Boyanov & Co. advises on the privatization of BTC.

Court Precedent Set in VAT Refund

Thursday, February 19th, 2004

In a recent decision issued following an appeal filed by Borislav Boyanov & Co. and AFA on behalf of a client the Supreme Administrative Court set a precedent by confirming the right of VAT (Value Added Tax) refund in cases where one of the indirect suppliers of the tax subject has avoided or frustrated the application of the tax law. The court accepted Borislav Boyanov & Co.’s arguments that the tax authorities may reject the VAT refund only if it is proved that as a result of the violation of the tax laws the tax subject has received a tax benefit and provided further that that was specifically ascertained by the tax authorities during a tax audit, including by specifying the amount of such benefit in the tax assessment act. Further, the Court ruled that if the right to a tax credit refund is rejected to both the tax subject and its direct supplier it would lead to the transformation of the VAT into a cumulative indirect tax. However, if the direct supplier of the tax subject has complied with all legal prerequisites of the VATA and the due tax has been paid by the tax subject under an invoice, there would not be any legal ground for refusal of tax credit refunding.

Morgan Stanley Appointed as Bulgartabac’s Consultant

Tuesday, February 17th, 2004

On February 16, 2004 Morgan Stanley & Co. Ltd has been announced a sales consultant of Bulgaria’s tobacco monopoly Bulgartabac. Morgan Stanley is experienced in the privatization of Serbian cigarette factories DIN and DIV. The Holding’s Supervisory Board is due to sign the contract with Morgan Stanley within 10 days. Three months later the privatization of the tobacco monopoly’s production companies and subsidiaries must kick off. Bulgartabac’s consultant must also draw up a strategy for their restructuring.

The new strategy for Bulgartabac’s privatization, which the government approved at the beginning of October, envisages the piecemeal sale of the cigarette production companies and tobacco processing subsidiaries. Bulgartabac includes twelve processing factories and nine cigarette factories. It also runs five cigarette factories in Russia and one each in Ukraine, Romania and former Yugoslavia.

UK tobacco giant Imperial Tobacco Group, British-American Tobacco, together with Philip Morris and Gallagher, already declared interest in the privatization of Bulgartabac.

Bulbank Signs Agreement for Acquisition of Unileasing

Monday, February 16th, 2004

On February 10, 2004 Bulbank entered into an agreement for the purchase of the shares of the Bulgarian leasing company Unileasing. In this way the largest commercial bank in Bulgaria entered the market for leasing services. Borislav Boyanov & Co. advised Bulbank on the acquisition and obtaining of the relevant clearances from the Bulgarian National Bank and the Commission on the Protection of Competition. Following the change of the name of the company to UniCredit Leasing Bulgaria EAD, Bulbank plans to develop the leasing business with respect to the purchase of production equipment, vehicles, agricultural machinery and other assets for corporate clients, as well as with respect to the leasing of cars. The increasing appeal of leasing financing for buyers is based on the low initial investment required, the lack of separate collateral requirement, and the deferred payment of VAT over the entire tenure of the leasing contract. Leasing products will also be offered via the branch network of Bulbank.

Five Bids Submitted for the Privatization of the Electricity Distribution Utilities

Monday, February 16th, 2004

Five indicative offers were submitted in the Bulgarian Privatization Agency by the deadline of February 16, 2004 for the privatization of the electricity distribution utilities. Among the bidders are Italy’s ENEL, German’s E.ON, Czech CEZ, Greece’s PPC and the Austrian EVN. The Russian RAO (United Energy Systems) was not admitted to bid due to absence of both debt rating and experience in a liberalized electricity market. At this stage the Privatization Agency refused to disclose information about the sales packages for which each of the bidders is participating. Each bidder may acquire only one sales package. The tender pool for Western Bulgaria comprises the distribution utilities in Sofia, Sofia-district and Pleven. Southeast Bulgaria pool includes Plovdiv and Stara Zagora power utilities. The pool for Northwest Bulgaria contains the power utilities in Varna and Gorna Oryahovitza. The Privatization Agency is selling 67% of the shares in the seven electricity distribution utilities whereas at least 51% should be bought by a strategic investor and for the remaining 16% it may involve a financial institution. Before submission of the final offers the investors shall be allowed to make a legal and financial due diligence of the target companies. The ranking of the bidders in the final stage shall be made on the basis of the price offered only.

Borislav Boyanov & Co. advises the Bulgarian Government on the privatization of the electricity distribution utilities as part of an international advisory consortium led by BNP Paribas.

Oxford Business Guide 2004 Launched in Sofia

Thursday, February 12th, 2004

On February 12, 2004 the annual economic and political review Oxford Business Guide “Emerging Bulgaria 2004” was officially launched at the Sheraton Sofia Hotel Balkan. The opening was made by HE Simeon Saxe-Coburg, Prime Minister of Republic of Bulgaria. Distinguished speakers were Mr. Nikolay Vassilev, Deputy Prime Minister of the Republic of Bulgaria and Minister of the Transport and Communications and Mr. Michael Benson-Colpi, Chairman of the Oxford Business Group. Borislav Boyanov & Co. was part of the team that prepared the book. The Oxford Business Group is a consulting and publishing firm specialised in the emerging markets of Eastern Europe, Middle East, Central Asia and North Africa. The annual business, economic and political publications so far individually covered Turkey, Lebanon, Egypt, Syria, the UAE, Azarbaijan, Jordan, Tunisia, Morocco, Algeria, Qatar and Romania. The Oxford Group has recently brought their flagship Emerging Market series of annual country investment books to Bulgaria, following their most recent publication, Emerging Romania 2003. The Guide “Emerging Bulgaria 2004” is published in association with the American Chamber of Commerce in Bulgaria and is the most comprehensive English language review of the Bulgarian economy ever published internationally. The Guide promotes the favourable business climate in Bulgaria and facilitates the better acquaintance with the country. A limited number of free copies of the “Emerging Bulgaria 2004” Guide is available at Borislav Boyanov & Co. upon request.

The Trade Register May Go Out of the Courts

Monday, February 9th, 2004

On February 9, 2004 a seminar on the modernization of the Trade Register in Bulgaria was held in Sofia. The seminar was co-organized by the Ministry of Justice of Bulgaria and USAID. The seminar was widely attended by representatives of the business (the American Chamber of Commerce in Bulgaria, the Bulgarian International Business Association, the Bulgarian Chamber of Commerce and Industry, the Institute on Market Researches, the Center for Search of Democracy, etc.) and the judicial system. The Registrar of Companies in Ireland, Mr. Paul Farrell, and a representative of InfoCamere (the trade register in Italy) were also invited as speakers at the seminar. Damian Simeonov (Partner at Borislav Boyanov & Co.) was invited to present the view of the American Chamber of Commerce in Bulgaria on the topic, as well as to take part in the discussion. As a result of the discussions held, two main approaches were outlined: to leave the courts in charge of companies registrations or the registration to be assigned to a special independent organization. The almost united view of all participants, except the representatives of the Ministry of Justice and the judicial system was that there is no reason and rationale, justifying keeping the Trade Register within the judicial system and that a single unified central electronic register should be created instead, to replace the currently existing various local registers kept in hard copies only (local companies registers, local land registers, etc.). The Ministry of Justice has appointed a special working group to analyse the various proposals and options and suggest the most suitable one. A positive outcome of the seminar was that in his final speech the Deputy Minister of Justice, Mr. Bozhikov, said that although at the outset of the seminar he was prejudiced in favour of keeping the register within the judicial system, as a result of the fruitful discussion he is now more convinced that the trade register should go out of the judicial system.

Record Fine Imposed by the Commission for the Protection of Competition

Friday, February 6th, 2004

Bulgaria’s Commission for the Protection of Competition has imposed a much higher fine (BGN 100,000 equal to some Euro 50,000) for organizing a product promotion based on the collection of proofs of purchases by the customers than it used to impose so far. Although the resolution is a precedent for the competition authority so far and also is a case of a repeated violation, for which in principle fines are higher, it may mark a future trend in the practice of the commission for such breaches of the competition law. A reason for this change in the approach of the commission may be certain criticism by the European Union that the CPC’s attitude towards competition law violations is insufficient to ensure effective enforcement of the law.

5 Bids Submitted for Bulgartabac Sale Consultant

Tuesday, February 3rd, 2004

Five companies submitted offers in the contest for privatisation consultant of the sale deal for Bulgaria’s tobacco monopoly Bulgartabac before the deadline expired on February 2. These are SG Corporate Finance Advisory, Paris; JP Morgan Plc, London; a consortium led by Credit Suisse First Boston (Europe), London; Morgan Stanley & Co. Limited, London; UBS Ltd, London, in a tie-in with Balkan Consultancy Company, Sofia. The consultant in the deal will be required to prepare the privatisation of Bulgartabac subsidiaries and draw up a strategy for their restructuring.