Sell Off Dilemmas for PA

Economic News

22 Jul 2010
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With the July 29 decision of the Supreme Administrative Court (SAC) to bring Austria's Viva Ventures back into the deal on privatisation of the Bulgarian Telecommunications Company (BTC), the state giant's troubled sell off entered another chapter of uncertainty. Meanwhile, the country's authorities pondered a new strategy for privatising the Varna shipyards, while discussion continued on the best way to sell off another key company - Bulgartabac.



The SAC ruling revoked that of the Privatisation Agency (PA) supervisory board, which had earlier rejected a draft contract signed with Viva Ventures for the privatisation of a 65% stake in BTC. As a result, the whole issue goes back to the PA supervisory board, which has until August 13 to decide to implement the SAC decision.



According to legal experts consulted by the news website Pari, there is no chance of appeal at this stage. This is bad news for the Turkish consortium, comprised of Koc Holding and Turk Telekom, which had managed to get the contract when the PA had earlier ruled against Viva, the initial bid winners.



Yet there are still legal complications outstanding, as on July 18, the PA had signed a preliminary agreement with the Turkish consortium. In the meantime too, both candidates have improved their bids. Koc Holding-Turk Telekom offered EUR30m extra to its bid, taking it up to EUR215m, while Viva Ventures announced it was guaranteeing a price of EUR230m and was ready to pay another EUR20m if a claw-back arrangement in the deal was dropped.



The Turkish conglomerate was also reported in the Turkish press to be trying to widen its support base. The Turkish daily Hurriyet reported that Koc had approached fellow Turkish industrial giant Sabanci Holding to join the consortium. Yet, if the PA fails to come up with solid grounds for turning down Viva once again, Koc's efforts may be in vain.



Elsewhere, debate continued on the way to sell off another major asset - the Varna shipyards.



Belonging to Navigation Maritime Bulgare (Navibulgar), legal experts have now come forward to say that it cannot be sold off as a separate entity. This has caused consternation for those intent on selling off the 75% stake in the shipyard originally on offer. They argue that no strategic investor is likely to be found that would be willing to take on Navibulgar's current joint responsibilities of ship building and sea transport. Instead, packaging the sell off in two parts is likely to be more successful.



Navibulgar had itself taken on the shipyards back in 2002, when it paid BGN35.5 million for the Varna yard. According to the current sales procedure, Navibulgar will set up a joint venture with the buyer of the 75% stake. Up to 26% of the shares of the future owner will be pledged at the Central Depository for a term of three years. If during that period, the buyer fails to provide an annual turnover of at least USD40m, or USD120m for the whole period, Navibulgar will automatically receive the shares and the buyer will become a minority owner.



Whether to sell in whole or in part has also been a bone of contention with another major industry - Bulgartabac. The leader of the Movement for Rights and Freedoms, Ahmed Dogan, whose party is in Prime Minister Simeon Saxe-Coburg's coalition government - spoke out late July, saying that while previously, consideration had been giving to selling off the enterprise as a whole unit, sale in parts might have its benefits too.



Dogan said that he expected the sales mechanism to be fully worked out and specified before parliament breaks for its summer recess - but that a vote on the issue would be unlikely before the assembly returned from its break in September.



The government has a deadline of the end of the year for the company's privatisation, yet no candidate buyers have so far been officially registered. However, market observers say that several different tobacco giants have expressed an interest, including Philip Morris, website Pari reported.



Bulgartabac board member Lyubomir Lekov also told reporters that the company board was considering privatisation through a parallel restructuring. Under this, the profitable enterprises in Bulgartabac's structure might be sold separately through the stock exchange.



Whatever method is finally chosen, some observers are also now wondering if the privatisation campaign in general might now be losing momentum. It may be that the government will face growing criticism from opposition and international agencies if this is the case. Prime Minister Simeon Saxe-Coburg obviously has much work to do.

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