Bulgarian Govt Changes Plan On Financing Of Fibank Stake Acquisition

Bulgaria’s government said on Wednesday that it has approved changes to the economy ministry’s 2020 budget, allowing it to reallocate 140 million levs ($80.4 million/71.6 million euro) for an increase of the capital of state-owned Bulgarian Development Bank (BDB).

The government did not provide any further explanation in its statement issued less than a week after it said that BDB is acquiring some 28.3 million new shares in privately held First Investment Bank (Fibank) [BUL:5F4], representing around 19% interest, for some 141 million levs. 

“In view of its stable financial condition, high capital adequacy and solid liquidity position, BDB is capable of financing the acquisition of the shares from Fibank’s capital increase with own resources from accumulated reserves, and without using funds from its 700 million levs capital increase,” the government said last Friday.

The government’s decision to allow BDB to participate in Fibank’s capital increase caused a public outcry, as BDB agreed to acquire Fibank’s shares from the new issue at a price of 5 levs apiece, representing a 92% premium over the existing shares’ closing price of 2.6 levs on the Bulgarian Stock Exchange at the time of the auction of the subscription rights. In addition, the decision caused concerns that the funds from the BDB’s recent 700 million levs capital increase, aimed at supporting local companies through the fallout of the coronavirus pandemic, would instead be used to recapitalise Fibank.

However, the government motivated its decision by saying that investor interest in the capital increase was not high enough to cover the capital shortfall of 262.9 million euro at Fibank discovered by the European Central Bank during a check of Bulgaria’s banking system last year. The covering of the capital shortfall at Fibank was the last hurdle Bulgaria had to clear to get invited to enter the Exchange Rate Mechanism (ERM II) – the eurozone’s waiting room, and the EU’s Banking Union.

Also, some of Fibank’s new shares were subscribed for by private investors, which showed the price was competitive, the government argued last week.

Fibank is seeking to raise up to 200 million levs by offering 40 million new shares at a price of 5 levs apiece.

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