Bulgaria Makes BGN 15 M from Sale of Minority Stake at 'Arsenal' Military Plant

Industry | October 26, 2011, Wednesday // 15:49|  views

The Bulgarian state has picked a buyer for its 35.78% share at "Arsenal Kazanlak", one of the largest military factories in the Balkans, the Privatization and Post-privatization Control Agency announced.

The buyer of the minority stake is the actual majority shareholder, "Arsenal 2000", a private firm, which will own 99.63% of the Arsenal military plant located in the town of Kazanlak in Central Bulgaria, once the deal is complete.

Arsenal 2000 is to pay the purchase price of a total of BGN 15.1 M through a direct cash transfer into the account of the Bulgarian Privatization Agency. The privatization contract is supposed to be drafted within 30 days.

A total of three bidders bought tender papers for the privatization of the minority stake at Arsenal Kazanlak; however, one failed to provide the necessary request for access to classified information, and another pulled off on its own.

Arsenal 2000 bought 51% of the capital of Arsenal Kazanlak in 1999 for BGN 3.9 M. Two years later, it purchased another 12.85% of the large military factory for BGN 983 000.

According to the register of the Privatization Agency, the buyer has so far met all of its privatization commitments.

In March 2011, Bulgaria's Borisov Cabinet decided the Bulgarian state will no longer be required to keep a 34% share in formerly fully state-owned defense industry plants, thus paving the way for the complete privatization of what remains in terms of state assets in partially privatized military plants.

The formal motives of the Economy Ministry to shed the obligatory minority state quotas in the formerly fully-state owned military industrial complex were that the measure will ease the privatization procedures and will help attract more investments in the defense industry.

The requirement that the state should keep a minority stake in the privatized military plants was made in March 1998 by the right-wing government of PM Ivan Kostov.

Back then, the Kostov Cabinet approved a list of 25 companies from the military-industrial complex where the state was supposed to keep a minority stake; the Kostov government also envisaged the creation of a special institution to manage the state-owned stakes.

Also in March 2011, the Bulgarian government opened a one-stage tender to sell the 35.8% minority stake it still holds in one of the largest military factories in the country, Arsenal Kazanlak, which produces arms suitable for use by NATO, and employs 5 000 people.

The bidding requirements asked for companies involved in weapons production, with an annual income of at least BGN 40 M in the past year, the privatization agency said in a statement on Friday.

Binding bids from the potential buyers of the government stake in Arsenal Kazanlak, which employs 5 000 people, should be submitted by the middle of December.

After the sale of the minority stake in Arsenal Kazanlak, the Bulgarian government remains the sole owner of the capital of three military production complexes: VMZ Sopot, NITI Kazanlak, and TEREM (a military repair complex of eight plans which are in different privatization stages).

According to Economy Minister Traicho Traikov, state arms trading company Kintex will not be privatized.

For the time being the state is failing to privatize NITI Kazanlak because the company has a legal dispute for land ownership with the other military plant in the town, Arsenal Kazanlak.

The troubled VMZ Sopot (located in Sopot close to Kazanlak) is one of the largest Bulgarian military plant, and is also expected to be privatized in 2011. Candidates applying to buy VMZ Sopot will be eligible to bid for it if they demonstrate they have enough funds to cover its mounting debts, according to the strategy for the privatization of VMZ Sopot, and the future owner  will not be allowed to lay off workers in the first three years after buying it. The VMZ Sopot plant employs 3 700 workers.

The bulk of the Bulgarian military-industrial complex was created during the communist period when the People's Republic of Bulgaria made lots of cash by selling arms mostly to developing countries. Together with the former USSR and the former Czechoslovakia, Bulgaria was the third COMECON member specializing in the defense industry.

The sale of the minority stake in Arsenal Kazanlak adds another BGN 15 M to the account of the Privatization Agency, which is supposed to raise BGN 450 M from the sale of state assets in 2011 – as the government requires it to in order to fill gaps in the state budget.

This is the third larger privatization deal in Bulgaria in 2011 after the sale of "Industrial Construction Holding", a state company, to a local private investor for BGN 12.01 M, and the sale of state cigarette-making giant Bulgartabac to Russian bank VTB for EUR 100.1 M.

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Tags: privatization, Industrial Construction Holding, Privatization Agency, Privatization and post-Privatization Control Agency, Agency for Post-Privatization control, state-owned, minority stake, Economy Ministry, TEREM, NITI Kazanlak, military factory, Arsenal Kazanlak, VMZ Sopot, defense industry, Military-industrial complex, NATO, Emil Karanikolov


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