With the state's last share in the Bulgarian Telecommunications Company (BTC) sold for compensatory notes on the stock exchange in Sofia this week, the much-awaited auction is now finally over. As anticipated, the sale attracted a number of big investment funds from the US, the UK and other European countries. Prior to the sale, one consortium of funds had acquired some Lv530m (271m euros) nominal value of the compensatory notes out of the Lv674m (344.6m euros) that were used in the auction.
According to initial reports, local investors ended up with less than 5% of BTC's shares. Large stakes were bought by foreign institutional investors, which, according to some analysts, were making their first entry into the Bulgarian market through the BTC deal.
Krassimir Tahchiev, senior analyst at the First Financial brokerage house, told OBG on January 28 that, "The positive effect of the BTC deal is that having made their first investment in Bulgaria, some of these companies intend to increase their exposure to the Bulgarian capital market."
Meanwhile, contrary to some expectations, retail investor interest was quite low on the day. Some analysts have suggested that this was due to concerns that the company, with a market capitalization of 1.35bn euros, does not have sufficient liquidity for an outfit of this size.
On the other hand, Tahchiev explained, "Over 28% of the BTC shares were acquired by a group of funds that most probably have an agreement for mutual policy. This means that their shares are not likely to appear on the market and the actual free float is no more that 10% of BTC."
Yet market watchers say the listing of the telecoms giant marks the end of a long process for both the telecoms company and the Bulgarian Stock Exchange (BSE). The much expected telecoms deal absorbed some 70% (Lv624m [319m euros]) of the compensatory notes which are currently in circulation.
When BTC first began trading on the BSE-Sofia in the early months of 2005, it marked the end point of a long and tortuous privatisation, and a turning point for the market. The BTC sell off has been one of Bulgaria's most important ventures, and the company's long-awaited arrival on the bourse was expected to provide a much needed "anchor stock" - an enormous listed company, drawing in investors by adding capital, generating trading liquidity and boosting confidence.
One of the keys to developing Bulgarian capital markets over the past decade has been privatisation, which has brought in companies and investors. However, there were few deals in 2004, and these mostly direct sales to investors rather than the listing of new stocks on the market - explaining why BTC was seen as so important.
Meanwhile, the process of completing the initial public offering (IPO) and beginning secondary trade seems a world away from the tortuous negotiations, which have been dragging on since 2002.
In October of that year, 65% of BTC was offered for 230m euros to successful bidder Viva Ventures, an equity house based in Vienna and part of the US-UK fund Advent International. There were expectations that the remainder would then be sold, with a large percentage listed on the bourse. However, the process was delayed by political opposition from unions, telecom rivals and rival bidders, until finally resolved through the courts.
The state planned to list 20-25% of the company through an IPO, while retaining some 10%. However, in late 2004 it emerged that the IPO would be for 35% - news which delighted the market. The sale was set for early in 2005, with 2.87m shares offered, representing 34.8% of the company.
Throughout 2004 there was enormous interest in the offer. Many analysts saw BTC as having a strong market position and good future earnings potential, given growth in telecoms use and the company's success in gaining the country's third GSM licence. But a more direct reason for the massive attention was that the IPO was to be held in exchange for compensatory vouchers. Through late 2004 and into 2005, this led to a massive increase in the market exchange value of these vouchers, from some 20% of their face value, to more than 108%.
According to Tahchiev "the compensatory market lived out its renaissance in the weeks just before the [BSE's] largest ever privatisation took place. Their prices reached record highs, pegging well above the nominal value."
However, as was expected, Tahchiev added, "The value of the compensatory vouchers dropped the day after the auction, falling to 65% from a 105% average recorded the previous day."
Looking further into 2005, the success of BTC is raising hopes of progress on other stalled privatisations, principally Bulgartabac, the state tobacco company. This has been subject to a long political battle over the future of ethnic Turkish tobacco farmers in the south of the country. Some 12.8% of Bulgartabac is already listed, and there are plans to sell the remainder to strategic investors, perhaps with some further bourse listing.
In 2004, some of Bulgartabac's factories were offered to investors. However, there proved to be limited interest given tough political conditions on the sale. Other privatisations hoped for in 2005 include Bulgarian River Shipping and Navigation Maritime Bulgare, as well as a number of defence companies - though it remains unclear how much of these will be offered to the public via the BSE.