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BULGARIA: An Introduction to Corporate/Commercial

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Chambers Europe 2020: Practice Area Overview for Bulgaria

The Bulgarian economy has been expanding for the past five years and an economic forecast for 2020 predicts a solid growth of 3.2–3.5%. Despite foreign direct investments decreasing, the economy has been boosted by strong domestic demand and the increasing public expenditure.

However, business uncertainty remains as a result of high levels of corruption as well as sometimes unexpected decisions of the regulatory authorities. A notable example is the competition regulator’s blocking of ČEZ’s attempted disposal of its Bulgarian business.

The current coalition and centre-right GERB party-led government has been in power since March 2017 and continued to invest in infrastructure and public services. For example, major motorways are being built and expanded. Sofia Airport has been tendered out for a concession that was provisionally awarded to a consortium comprising France’s Meridiam, Austria’s STRABAG and Flughafen München.

Current economic conditions 

Economic forecast for 2020 predicts that the economy will grow a solid 3.2–3.5%. Businesses, especially export-oriented industries such as metallurgy, apparel, IT software, agricultural products and mining, are expanding. Residential and commercial construction continues its stable growth with an increasing number of developments being constructed, mostly office buildings in Sofia and other major cities. Other key sectors, such as retail, tourism and domestic market-oriented industries, are also growing.

The banking sector is very active with six key banks, all subsidiaries of European-based banks, competing in all market segments. Business credit is relatively easily available.

Business climate activity, trends and developments

2019 and the beginning of 2020 have seen several significant M&A deals. The biggest recent transaction was the €185m acquisition of Nova Broadcasting Group, a subsidiary of Sweden’s MTG and the country’s largest media company, by Advance Media Group. Also, PPF announced the acquisition for an undisclosed amount of bTV Media Group. Further, the Serbian United Group, a subsidiary of BC Partners and KKR, announced the acquisition of Vivacom, Bulgaria’s largest telecom group, for €1.2bn. In the banking sector, the two notable transactions were OTP’s acquisition of Societe Generale Expressbank and Eurobank’s acquisition of Piraeus Bank Bulgaria.

Internationally-provided financing continued to dominate Bulgaria’s big-ticket project financings and leveraged acquisitions. However, EBRD, EIB, and IFC-supported financings have decreased significantly due to the wide availability of commercial bank credit. Bulgarian commercial banks have stepped in and also the national development bank, BDB, is increasingly active in significant projects. Highlight financing deals in 2019 included the BNP Paribas and UniCredit-led €150m credit facility to Advance Media Group for its acquisition of Nova Broadcasting Group and the BNP Paribas-led multimillion euro term loan secured facility for PPF’s acquisition of bTV. International bank-led syndicates now routinely include Bulgarian subsidiaries of such banks as UniCredit, OTP, KBC and Eurobank as well as large Bulgarian-owned banks such as FIB and BDB.

Given the current market conditions, very few insolvencies have been announced except for a few cases relating to office buildings and shopping malls in big cities. Among few consensual corporate debt restructurings, the most notable involved BulSatCom securing new money financing from EBRD, BlackRock and BDB.

There were no new listings of companies or bonds on the Bulgarian stock market in 2019.

As a result of sometimes unexpected decisions by the Bulgarian regulatory authorities, companies are looking for ways to fall under the jurisdiction of EU authorities. One such possibility is the ‘coupling’ of the Bulgarian business or asset with a business or asset in another EU member state to achieve the threshold that requires merger clearance by the European Commission.

In terms of market trends, acquisitions by local companies of the assets formerly owned by major foreign investors are likely to continue. The ‘domestication’ of big-ticket bank financings will increase, fuelled by the availability of cheap credit from Bulgarian banks’ Eurozone-based parents.

Public-private partnerships are re-starting after several slow years. The key projects to watch are: the tender for the construction and commissioning of the NPP Belene project (CNNC, Rosatom, GE and Framatome participating in various roles); the completion of the Sofia Airport concession tender and the anticipated re-start of a concession tender for Plovdiv Airport.

Impact on the legal market 

Bulgaria’s leading 6–8 firms continue to receive the majority of high-end legal work with very few new entrants. However, the fees are increasingly competitive.

New legislation 

There were multiple changes to the energy law, mostly concerning further liberalisation of the electricity, gas and heating power markets. The legal regime applicable to renewable energy was changed from a feed-in-tariff based to a feed-in-premium based. The change was introduced after consultations with the electricity producers and commercial banks and so far had no negative effects.

The Concessions Act was amended to implement EU Directive 2014/23. The law provides for two new tender procedures, namely a competitive procedure with negotiations and a competitive dialogue. The concession period can not be longer than 35 years for concessions for construction or services and 25 years for concessions for use of public property. These terms may be extended by not more than 1/3 of the original term. Explicit rules on sub-contracting are now provided, detailing requirements for the sub-contractors, including the disclosure and information requirements.

A new anti-money laundering law was passed which implements EU Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. The measures include a complex check of the clients, collecting documents and other information, risk assessment from a money laundering perspective, and disclosure of information about suspicious activity. Importantly, the law mandates the disclosure of the beneficial ownership in companies who exceed 25% of the capital of the company. The beneficial owners are registered in the commercial register.

In a major change to the company law, the bearer shares were abolished in Bulgarian-incorporated companies.

Vassil Hadjov, Partner Spasov & Bratanov Lawyers’ Partnership (founding member of ADRIALA)