BTC’s Troubled Sell Off

Economic News

22 Jul 2010
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With the signing of a contract for the privatisation of Bulgaria’s state telecoms company last week, the country’s sell off programme received a major boost. This calmed some of the concerns of international lenders, though the prospects of legal action and worries that the new cabinet might not stick firmly to fiscal guidelines, continued to cause a few furrowed brows in Sofia.

Late July 18, a draft contract was signed for the sale of 65% of the Bulgarian Telecommunications Company (BTC) to a consortium comproised of Turkey’s Koc Holding and Turk Telekom. The total amount offered for in the deal is EUR265m, which includes EUR50m for a capital raise. The draft contract also commits Koc Holding/Turk Telekom to invest a further EUR218m, undertake EUR70m of state guarantees on BTC loans, and provide EUR15m to handle national security requirements.

The Bulgarian state will also hold a golden share, with two representatives on the board of directors who will have certain veto powers. This stipulation is to try and build in a guarantee that BTC will remain a Bulgarian company, will not be liquidated and will not change its line of business. The draft was supplemented by a claw back agreement, which will allow the state to participate in any future attempt to raise BTC capital, granting the state 10% of whatever is raised.

The draft protects the state’s interests “in the best way possible”, according to Privatisation Agency (PA) CEO Ilia Vasilev, who told reporters that up to 20% of BTC’s shares could also be listed on the Bulgarian Stock Exchange, once the majority package had been finalised. This, he said, is expected to be done within three months after the sales contract is signed.

However, when this would happen was not so straightforward. Earlier the same day, in another part of town, the Supreme Administrative Court (SAC) sat once again to continue its deliberations in the case filed by Viva Ventures against the PA supervisory board. Viva were the initial winners of the BTC privatisation contract, but a ruling by the PA board in June cancelled the agreement and re-opened the sell off, letting in the Koc Holding/Turk Telekom partnership.

Viva protested the ruling, and a court case at the SAC has been in progress ever since. It is expected to make a decision in a month's time, though Sofia was rife with rumours that it might make a ruling much earlier.

Addressing this issue at the signing with Koc Holding/Turk Telekom, Vasilev said that previously, only the main part of the contract had been signed with Viva Ventures, with no annexes to the agreement specified. However, the draft deal with the Turkish consortium included a clarification of all clauses and all the annexes. This did not mean that the agreement was a done deal though, Vasilev was at pains to point out. Negotiations with the Turkish consortium are set to continue, as the act of signing the draft means only that an agreement on the terms of the deal has been reached, not that the deal is closed. In addition, before initialling the draft contract, the PA had extended the deadline for signing the full contract, while there will also be a 10-day period after the SAC ruling for the PA supervisory board to decide what to do next.

So the BTC sell off is by no means out of the woods. This is clearly still troubling the International Monetary Fund (IMF), which is currently pondering what kind of agreement it wants to replace the current stand-by arrangement it has with Sofia after this expires in February 2004. The talk currently is of a precautionary deal, with the Fund linking its loans to a more stringent policy of sell offs. The rationale for that is that the country’s current profile as a low-risk destination for investment needs to be maintained, with that seen as depending greatly on the government sticking tight to its medium-term fiscal strategy.

In this, BTC is a crucial player, as it represents one of the country’s biggest privatisation projects. The Fund also wants to see a new energy bill and a reorganisation and restructuring of state subsidies to both the energy sector and Bulgarian State Railways.

If the BTC sell off does go through to Koc Holding/Turk Telekom, then this will boost the Fund’s confidence in Bulgaria – and also boost Turkey’s already considerable presence in the country.

This presence looks to be given a further boost in future thanks to new border arrangements announced the same week. A joint meeting of the Bulgarian Council on Simplifying Trade Procedures (Bulpro) and the Turkish Trade and Business Facilitation Committee in Odrin came up back then with plans for the independent monitoring of disputes connected to trade through the Kapitan Andreevo border crossing.

In recent weeks there have been complaints from Turkish transportation companies and truck drivers that they were being charged extortionate fees to cross over.

Under the new scheme, a firm of US consultants will operate the mechanism, while there will also be a simplified system for payment of border fees at a single checkpoint and efforts to cut transit times and simplify visa issuing.

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