Bulgaria's Privatization Head Up in Defense of Bulgartabac's SaleIndustry | August 31, 2011, Wednesday // 15:11| views
Emil Karanikolov, head of Bulgaria's Privatization and Post-privatization Control Agency. Photo by BNR
The sale of the Bulgarian state-owned tobacco company Bulgartabac to Russian state bank VTB is favorable for Bulgaria, according to the head of Bulgaria's Privatization Agency Emil Karanikolov.
Karanikolov has defended in Parliament the decision made by his institution to approve the sale of Bulgartabac for EUR 100.1 M to BT Invest, a firm registered in Austria by the bank owned by the Russian government.
On Monday it became clear that BT Invest – the only entity to make it to the final stage of the privatization tender – offered a price of EUR 100.1 M for the purchase of 5 881 380 shares, which are 79.83% of Bulgartabac's capita or EUR 100 000 above the minimum asking price set by the Privatization and Post-privatization Control Agency.
The Russian-owned bidder – which was the only company that reached the final stage of the privatization procedure after British American Tobacco and Austria-based CB Family Office Service dumped the sale earlier in August – has also pledged in its offer that it will be buying a minimum amount of 5000 metric tons of Bulgarian-produced tobacco in the first five years after the sale. The amount in question is about 15% of Bulgaria's 2010 tobacco production.
"We spoke to our consultant (i.e. Citigroup – editor's note) today. The price that has been offered corresponds to the value of the company. With Bulgartabac we are selling a business with commitments, not assets. And we are not selling all 100% of it. If we were selling the ownership or the assets, then we would not be requiring commitments, and we would be focusing on the price only," Karanikolov declared, as cited by BGNES.
He said the Privatization Agency would go ahead with the respective procedure. The contract with BT Invest is to be prepared by the Agency with a 15-day deadline, after which the document would be submitted for approval with the Governing Board. The latter has a 2-week deadline to announce its decision; then there are another 15 days for the two sides to sign the contract if the decision is favorable for the buyer.
"The syndicates in Bulgartabac demonstrated as soon as we announced the tender that they would oppose the privatization of the company till the very end. I understand their position. But I think that the Agency and the Supervisory Council have done their job – to preserve and develop the work of the company," Karanikolov stressed, adding,
"The most important thing for the unions is that we are preserving the business activity of both the parent company and its subsidiaries for the next 10 years. And the employees who are between 2 400 and 3000 are protected for a period of three years. The guarantee for preserving the business activity of the company is secured with its assets – properties and equipment."
The head of the Bulgarian Privatization Agency further rejected criticism that the privatization procedure had been drafted in a way excluding strategic investors. He believes that the pledge of BT Invest for buying a minimum annual quantity of Bulgarian-produced tobacco provides for quantities that are not insignificant.
At present, Bulgaria's former cigarette monopoly Bulgartabac has a market share of 34% in the country.
The consultant for the Bulgartabac sale, Citigroup Global Markets Ltd, was picked by the Bulgarian government in February 2010.
Two of the less profitable plants of Bulgartabac holding - in the cities of Plovdiv and Stara Zagora - were sold in 2009 through the Sofia Stock Exchange - for BGN 31 M and BGN 18 M respectively.
The holding currently owns the two larger and more consolidated factories in Sofia and Blagoevgrad and a processing factory in Yasen near Pleven, as well as a number of commercial brands.
The Bulgarian government has set a goal of raising BGN 450 M from privatization before the end of 2011 but has raised only about BGN 13 M so far, making it likely that the government could opt for the sale of Bulgartabac even at a price slightly above the asking one.
Bulgaria's governments have been toying with Bulgartabac's privatization for the past 13 years; a procedure was first started in 1998 by the Kostov Cabinet. A privatization strategy for the holding was approved by Parliament in 2002 but what followed were two unsuccessful attempts to complete its sale to Tobacco Capital Partners and British American Tobacco.
Until January 2007, the Russian government held a 99.9% stake in VTB. Thereupon, at the World Economic Forum in Davos, its CEO announced that the government would retain a 50% + 1 share and privatize the rest of company shares.
At present the Russian government owns 75.5% of the bank via the Federal Property Agency, which has been repeatedly laying claims to assets of tobacco monopoly Bulgartabac Holding during the previous procedures for its privatization.
British American Tobacco, the only top-notch investor among the companies, which were expected to bid for Bulgaria's majority stake in cigarette maker Bulgartabac in 2011, withdrew from the tender once again, on August 1.
The news came a week after Austria-based CB Family Office Service abandoned the sale, leaving Austria-registered BT Invest, behind which stands Russia's second-biggest bank VTB, the only bidder for Bulgarian tobacco monopoly.
The move also confirmed rumors, which said British American Tobacco bought documents for the tender just with the aim of collecting information and had no plans to bid.
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