A year and a half after taking office, when the GERB Cabinet announced its intention to quickly privatise state tobacco company Bulgartabac, the Privatisation Agency launched the latest attempt to sell the company, making public the conditions of the tender.
Bulgartabac is expected to be sold within four months to a big company, with the tender carrying no mandatory minimum price. "I hope we have a buyer for Bulgartabac in 110 to 120 days from now," the chief executive of the Privatisation Agency, Emil Karanikolov, said.
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The Bulgarian state owns 79.83 per cent of the shares in the holding company, the rest are traded on the Bulgarian Stock Exchange. Despite the privatisation news, the traded price remained unchanged with 70 shares changing hands at 30.5 leva.
The company will be sold in a one-stage auction, open both to strategic and financial investors, each with their own limitations on participation. Off-shore companies and consortiums would not be allowed to bid, and a common denominator is that all bidders have to be a bigger company than Bulgartabac in terms of annual revenue and production turnover.
Strategic investors have to have a revenue of at least one billion euro from the sale of tobacco products over the past three financial years, as well as production capacity to process at least 12 000 tons of tobacco a year and make at least 35 billion cigarettes a year. For the previous financial year, industry bidders must have produced at least 20 billion cigarettes and have processed at least 10 000 tons of tobacco.
"No Bulgarian company meets these criteria; the companies that do are Philip Morris, Japan International Tobacco and Korea's KT&G, all of which have shown interest, as well as British American Tobacco, which have not," Karanikolov said.
Prospective financial investors are required to manage or own stakes in other companies worth at least one billion euro in each of the past three financial years. They are also required to have at least 30 million euro of their own capital. So far, three financial investors have shown interest in the Bulgartabac tender, the Privatisation Agency said.
The biggest weight in the bids (60 per cent) will be given to the amount of tobacco that the new owners plan to buy from Bulgarian producers, with a further 35 per cent of the scoring contingent on the price offered. The remaining five per cent will be scored based on planned future investment.
The criteria were adopted by the agency's supervisory board with all in favour, the sole abstention coming from Socialist representative Roussi Statkov. "I voted against because I think that the criteria do not meet the economic efficiency requirement," Statkov said.
The supervisory board had not been given the full information about the sale process until the last moment, he said. Previously, the recommendation made by advisers Citigroup was to have the price as the sole determining factor. "I would vote against such a deal if the framework remains unchanged, and I am a priori against the privatisation of a profitable company," Statkov said.
Prospective bidders will have 30 days to buy tender papers after the tender announcement is published in the State Gazette on May 10. The deadline for submitting bids is August 27 and the Privatisation Agency is slated to announce the winner by September 6.
"Citigroup advised us against setting a minimum price, because then we would get offers close to that level," Karanikolov said.
Another requirement will be for the new owner to keep Bulgartabac's payroll at the current number of 2400 employees. "One of the prospective bidders jokingly asked whether we had nationalised Bulgartabac because he thought we had sold it 10 years ago," Karanikolov said.
Citigroup Global Market Ltd. was picked to advise the Cabinet on the sale in February 2010, winning the race against Russia's Renaissance Securities and consortiums led by KBC Securities and Raiffeisen Investment. Citigroup replaced Morgan Stanley, who advised Bulgaria during the unsuccessful attempt to sell Bulgartabac in 2004/06.
Bulgartabac Holding now owns two tobacco factories, in Sofia and Blagoevgrad, compared to the nine it had in 2004, and its worth is estimated by the Economy Ministry at 80 million leva.
Bulgartabac's market share has plunged from 90 per cent at the start of 2007, when Bulgaria liberalised the market, to less than 37 per cent. Economy Minister Traicho Traikov, however, forecast in 2010 that the company could be sold for as much as 100 million euro.
Over the past two years, Bulgartabac Holding has become geared towards exports, which accounted for 80 per cent of the 13 billion cigarettes sold by Bulgartabac. Total sales revenue was more than 300 million leva in 2010, with net profit up to 20 million leva, compared to three million leva in 2009.
The company's main export markets were the Middle East and the Balkans, a trend that was confirmed in the first quarter of 2011, when the exports of Bulgartabac's Sofia subsidiary grew by 40 per cent year-on-year. Enditem
