Bulgaria Stocks Drop Most in 16 Months as Bank Runs Out of Funds

Bulgaria’s stock index slumped the most in 16 months as the central bank appointed administrators to manage the nation’s fourth-biggest lender after it ran out of funds and stopped all operations.

Shares of Corporate Commercial Bank were suspended today after slumping 9.8 percent yesterday. The Sofix Index (SOFIX) retreated 3.7 percent to 538.90 at the close in Sofia. The government’s July 2017 euro-denominated bonds fell, sending the yield up four basis points to 1.49 percent.

Bulgaria’s central bank appointed two administrators for three months to manage Corporate Commercial and suspended the bank’s management, central bank Governor Ivan Iskrov said at a news conference in Sofia today. The lender faced an “enormous run on funds” in the past week, Iskrov said. The development comes before Bulgaria starts investor meetings in Europe on June 23 for a possible euro bond sale.

“The news was clearly behind the drop in Bulgarian stocks, especially as the market is relatively illiquid compared to peers,” Simon Quijano-Evans, the London-based head of emerging-markets research at Commerzbank AG, said by e-mail. “Given the systemic importance of the bank, the big question and risk is that political issues can lead to such a situation. That is probably the main question that investors will be asking themselves ahead of any bond issue.”

Bulgaria picked Citigroup Inc., HSBC Holdings Plc and JPMorgan Chase & Co. to manage its investor meetings, a person with knowledge of the plan said June 18, asking not to be identified because the details are private.

‘Not Bankrupt’

The Sofix Index slid the most today among 93 equity gauges monitored by Bloomberg. The measure has fallen 11 percent this month.

“The bank is not bankrupt, the central bank acted promptly and decisively to avoid bankruptcy,” Iskrov said today. “It’s closed. Our idea is to clean up the bank, if needed, to reduce its capital and to negotiate with potential buyers.”

VTB Group, Russia’s second-biggest lender, holds 9.9 percent of Corporate Bank and “has expressed interest in discussing support” for the lender, Iskrov said. The bank’s majority shareholder is Sofia-based Bromak EOOD, with 50.7 percent stake. Luxembourg-registered Bulgarian Acquisition Co., controlled by the State General Reserve Fund of Oman, has 30.4 percent, according to Iskrov.

To contact the reporter on this story: Natasha Doff in London at ndoff@bloomberg.net

To contact the editors responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net Matthew Brown

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