Bulgaria’s central bank will increase the capital of Corporate Commercial Bank AD and a subsidiary after they ran out of liquidity as the government starts investor meetings in Europe for a possible bond sale.
Bulgarian officials will hold their first meeting to advertise the planned sale of Eurobonds worth 1.5 billion euros ($2 billion) in Germany today, according to the Finance Ministry. The sale, which may be done in several tranches, will be promoted in London tomorrow, in Paris on June 25 and in Vienna on June 26.
The tour comes a day after the central bank said it will recapitalize Corporate Bank and its unit, the former subsidiary of Credit Agricole (ACA) that it bought on June 12, after placing them in receivership on June 20 and June 22, respectively. The central bank seized Bulgaria’s fourth-largest lender by assets after it ran out of funds and stopped operations three days ago, spurring the biggest stock slump in 16 months.
“The roadshow will go on as planned,” Finance Ministry spokeswoman Maya Milanova said by phone today. “There are no changes. We’ll provide information after the end of the tour when the sale is done.”
The seizure, the first in 17 years, “is an isolated case” and the two banks’ “liquidity shortage does not affect the rest of the banking system,” the central bank said.
The amount of the capital increase will be known in 10 days after administrators evaluate the lenders’ assets and liabilities with an external auditor, according to the regulator.
“Aiming to preserve the activities of the CCB bank group and its rehabilitation,” officials “will take actions to increase its capital,” using funds from the state-owned Bulgarian Bank for Development and Deposit Guarantee Fund, the central bank said yesterday.
Bulgaria picked Citigroup Inc. (C), HSBC Holdings Plc (HSBA) and JPMorgan Chase & Co. (JPM) to manage its investor meetings, parliament said on June 6. The funds will be used to repay about 1.1 billion lev ($698 million) in international debt due Jan. 15 and about 1.3 billion lev in domestic debt maturing this year, according to Finance Minister Petar Chobanov. Part of the proceeds will also cover the planned budget deficit.
The government’s July 2017 euro-denominated bonds were little changed, with the yield at 1.49 percent at 4:38 p.m. in Sofia.
Bulgaria’s long-term sovereign rating was cut by Standard & Poor’s to BBB- from BBB on June 13, on par with Russia and South Africa. A “volatile” political backdrop is testing the country’s ability to overhaul its economy, S&P said. The eastern European country’s debt is rated Baa2 by Moody’s Investors Service and BBB- by Fitch Ratings.
Socialist Prime Minister Plamen Oresharski prepares for early elections three years ahead of scheduled polls. President Rosen Plevneliev said on June 17 that leaders of ruling parties agreed to hold early elections between Sept. 28 and Oct. 12.
A poor showing by the ruling Socialists in European Parliament elections on May 25 caused a rift with their junior coalition partner, the Movement for Rights and Freedoms. Senior politicians from the Movement had business links with Corporate Commercial, Capital newspaper reported on June 18, citing unidentified people.
Corporate Bank, in which Russia’s VTB Group holds 9.9 percent, faced an “enormous run on funds” in the past week after reports that a large depositor started pulling money, central bank Governor Ivan Iskrov told reporters in Sofia on June 20.
Businessman Delyan Peevski took his company accounts out of Corporate Commercial, including those of tobacco maker Bulgartabak AD, following a rift with the lender’s majority shareholder, Tsvetan Vassilev, according to Capital. Corporate Commercial and VTB jointly acquired dominant tobacco maker Bulgartabak in 2011.
The government “will give an option to the current shareholders to provide the needed resources” to support the bank “and the state will intervene if they don’t succeed,” the Finance Ministry said in an e-mailed statement today.
Shareholders include Bromak EOOD, owned by Vassilev, which holds a 50.7 percent stake in Corporate Commercial. Luxembourg-registered Bulgarian Acquisition Co., controlled by the State General Reserve Fund of Oman, has 30.35 percent, according to Iskrov.
The central bank appointed administrators in the two Bulgarian lenders, dismissed their management and revoked voting rights of shareholders owning more than 10 percent as part of actions to rescue the banks.
“Given the rise in non-performing loans, both in Bulgaria and in the rest of the region, further problems are likely to flare up from time to time over the coming years,” William Jackson, an Emerging Markets economist at Capital Economics in London said in a report today. “Whereas in 2008-09 or 2011 this might have led to contagion to the rest of the region, this now seems unlikely.”
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