The biggest, state-owned Bulgaria tobacco producer Bulgartabac Holding (BH) finally sold its company Gotse Delchev Tabac (GDT) on August 8 after several attempts in the beginning of 2007.
The majority stake, 78.27 per cent, was bought by the Blagoevgrad company Prestige Business OOD (PB) at a closed mixed auction at the Bulgarian Stock Exchange (BSE) in Sofia for 2.281 million leva (3.03 leva a share).
The minimum price for the GDT shares package was 2.25 million leva, Bulgarian language Medipool reported on August 8. The mediators of the deal were the local company Euro Finance, owned by Eurohold, and United Bulgarian Bank, majority-owned by the National Bank of Greece.
The other GDT shares were floated on BSE but the trade volumes are very weak.
Georgi Shapkov, who is a partner at PB, said they will continue GDT's core activity. He said PB would rely on the specialists and highly qualified professionals who work at GDT.
PB's core activity is selling office equipment, furniture and stationery. After the acquisition of GDT, PB said one of its first tasks will be to cover GDT's losses. The company registered negative financial results in the past years because of the high cost of processed tobacco and and currency differences. The factory has lost its market position in the past months. It posted a loss of 0.2 million leva in the first half of 2007 because of constantly decreasing sales.
The valuable part of GDT's assets is the new laboratory, estimated at $450 000. The construction of the laboratory was started 14-15 years ago and has not been finished yet. It has a capacity to process about 500 tons of tobacco a month but at the moment it is only processing a tenth of its full capacity. The reason given for this is that there is not enough raw tobacco. The 2006 tobacco harvest for the whole Gotse Delchev region was only 4000 tons and the 2007 harvest is expected to be about 2500-3000 tons.
BH will also put its processing units Kardjali Tabak and Yambol Tabak (formerly Kardjali BT and Yambol BT) up for sale. These also failed to attract bidders in May 2007 according to Bulgarian language daily Dnevnik. A 90.56 per cent stake of Kardjali Tabak and a 99.73 per cent stake of Yambol Tabak will be offered at starting price of 2.1 million leva and 600 000 leva, respectively.
According to Bulgarian language daily Pari the fact that the privatisation of BH has failed several times has lead to the current situation with the company and its subsidiaries. "The situation is the next evidence how political interference can influence the capital market and force a company on its knees before the foreign competition," Pari wrote on August 14.
The decision to change the excise duties in 2006 brought stable incomes into the state treasury. However, these gains were not a consequence of BH production but of the cigarette importers in Bulgaria. It was a somewhat successful attempt of indirect protection of Bulgarian production, Synergon Asset Management representative Ivo Tolev said. In his opinion it is hard to believe that in 2008 the situation will be similar, in spite of the planned increases in excise duties of 34 per cent. The abrupt price increases will probably have a negative impact on BH financial results.
According to Borislav Nikov from Status Invest the sales in Bulgaria will decrease but the incomes from abroad will grow.
However, in spite of the good results, tobacco factories do not have much interest from investors. According to Nikov, the main reason for the low liquidity of BH and its subsidiaries is the strong political interests in it - the state interests and those of the Movement for Rights and Freedoms political party.
In spite of the fact that the local tobacco companies are losing in the local market, exports are growing. Nikov gave Blagoevgrad BH AD as an example. Internal market sales increased nine per cent, while export sales leapt by 69 per cent. Sofia BH subsidiary recorded an internal sales increase of 17 per cent but a 95 per cent growth in export sales.
Another market analyst, Apostol Apostolov of TBI, thinks that the conclusion of the privatisation of BH will not happen until the end of the year. According to unofficial information, BH subsidiaries have more than an 80 per cent market share in Bulgaria and therefore Apostolov said in general is was optimistic about the outcome for BH.