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BSE: The battle for Bulgaria’s stock exchange

Investors were surprised when the government diluted their stakes via a capital increase at what they claim are absurdly low valuations. BSE officials say they are looking for a strategic partner. Sceptics warn this heavy-handed approach makes finding an outside investor harder. Mareen Goebel reports.

THE BULGARIAN GOVERNMENT’S move last month to take control of the Bulgarian Stock Exchange provoked outrage among many of the BSE’s existing shareholders. Opponents called the move a forced nationalization, while the government says it is the prelude to seeking a strategic foreign investor, possibly for the government’s entire stake.

At an extraordinary general meeting on September 13 shareholders were asked to vote on a capital increase to which only the government could subscribe. They considered a resolution to issue 715,000 new shares to the ministry of finance, which will pay Lev1 a share, a total of Lev715,000 ($497,700).

According to the bourse, 67% of shareholders were present to vote, out of which just over 88% voted in favour of the capital increase. A total of 11% resisted the motion to increase the exchange’s capital from Lev5.87 million to Lev6.68 million. The effect is to raise the ministry’s stake from 43.97% to about 51%, wresting control from the other shareholders.

The plan had provoked an angry article in the Wall Street Journal on September 7, headlined ‘Save Bulgaria’s stock exchange’, written by Victor Papazov, the BSE’s former chairman and chief executive, and commentator Patrick Young.

The authors said the capital increase was priced at "an absurdly low valuation", and that it would be "a disaster" – an unfair dilution of the existing owners’ holdings that would send a worrying signal to foreign and domestic investors in Bulgaria.

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