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BULGARIA: An Introduction to Corporate/Commercial

Chambers Europe 2022: Practice Area Overview for Bulgaria

The Bulgarian economy has continued its relatively strong growth for the last 7 years. While foreign direct investments have been on a downward trend for some time now, the economy has been boosted by strong domestic demand and the increasing public expenditure, the bulk of it EU-funded. However, persistently high levels of corruption, unpredictable judiciary and the arbitrary implementation of the law by state and local authorities remain significant challenges. For example, Parliament recently passed a price-setting moratorium on regulated electricity prices in violation of the current law. Additionally, the key business regulators, most notably in the competition and energy sectors, lack independence.

The current government (a coalition of political parties led by a newly founded technocratic party called We Continue the Change) has been in power since December 2021. While it has continued to lead fiscally sound policies, the government is planning to notably increase state spending on education, healthcare and other key public services. In addition, public investment in physical infrastructure and sustainable energy is also a focus and part of the country’s recovery and resilience plan which the European Commission approved in early April 2022.

Current economic conditions 

Economic forecasts for 2022 predict that the economy will post a worse than expected growth of 3.5%. However, export-oriented industries such as metallurgy, apparel, IT software, agricultural products and mining, are surging ahead. Residential and commercial construction, a major growth driver before the 2008 economic crisis, has continued its stable growth with an increasing number of developments proceeding to be constructed to plan, mostly office buildings in Sofia and other major cities. Other key sectors such as retail and tourism are also continuing to grow. The banking sector is very competitive with five major banks (all except one subsidiaries of European banks) competing in all market segments and business credit is easily available.

Business climate activity, trends and developments

2021 saw a limited number of notable acquisitions being completed or announced with completion due in the first half of 2022. The key M&A transactions of the year were the acquisition by Eurohold Group (a publicly listed Bulgarian insurance and general trading conglomerate) of the local operations of the Czech Republic’s energy giant CEZ and the increase by GeoPost (La Poste’s parcel delivery division) of its stake in Speedy (a leading Bulgarian express courier and parcel delivery service) from 25% to more than 70%.

In the banking sector, United Bulgarian Bank (a subsidiary of Belgium’s KBC Bank) announced that it would acquire the local operations of Austria’s Raiffeisenbank for a little more than €1bn in cash.

In the TMT sector, an outfit of Spas Rusev, a major Bulgarian diversified portfolio investor, announced that it would acquire BulSatCom, a leading Bulgarian satellite TV operator, for €120m.

In late 2021 Bulgaria saw ‘the birth’ of its first unicorn company when Pawhawk, a fintech start-up specialised in payment services, was valued in excess of US$1bn in a capital-raising round.

International financing continued to dominate big-ticket project financings and leveraged acquisitions. Multilateral (EBRD, EIB, IFC) financings have decreased markedly due to the wide availability of commercial bank credit and increasing sophistication of the Bulgarian commercial banks, as well as the national development bank (BDB). Major bank financings which occurred in 2021 include the J.P. Morgan and BNY Mellon-led multimillion euro credit facility for Eurohold’s acquisition of CEZ Bulgaria and the Citi-led multimillion euro term loan secured facility for Huvepharma, among others. International bank-led syndicates now routinely include large Bulgarian banks. Those for the most part comprise subsidiaries of major European banks such as UniCredit, OTP, KBC and Eurobank but also increasingly large Bulgarian-owned banks such as FIB, BDB and a few others.

Given the current market conditions, it is perhaps unsurprising that very few insolvencies have been publicly announced. The insolvencies mostly happened in the commercial real estate sector such as office buildings and shopping malls in the major cities. A few consensual corporate debt restructurings also took place, most notably in the real estate sector.

The effect of the various government and regulatory actions (carrying out tenders for major public assets following questionable procedures, arbitrary enforcement of competition rules) have negatively impacted the market sentiment. As a result, potential acquirers of, or investors in, major or politically sensitive businesses or assets are having second thoughts about proceeding with their plans. One possible way of avoiding the need for local competition clearing is the “coupling” of the Bulgarian business or asset with a business or an asset in another EU member state that increases the required merger clearance value.

In terms of market trends, acquisitions by local companies of the assets of departing major foreign investors are most likely to continue. The “domestication” of big-ticket bank financings will gather speed, fuelled largely by the overflow of cheap credit sourced from the main Bulgarian banks’ Eurozone-based ‘parents’.

Public-private partnerships are re-emerging after several slow years. The key projects to watch in that respect are the widely anticipated tender for the construction and commissioning of a battery production facility and the Sofia Airport concession that is operated by Meridiam and STRABAG.

Impact on the legal market 

The increasingly cut-throat fee competition, which is a characteristic of the local market, persists. The leading 6-8 firms have continued doing the bulk of high-end legal work with very few new entrants having succeeded in breaking through.

New legislation 

2021 did not see any major legislative developments given that for almost the entire year Bulgaria was governed by two President-appointed caretaker governments with the Parliament dissolved throughout 2021. The third general election in 2021 was held in November 2021 and resulted in a coalition government.

In March 2022 the Covered Bonds Act was adopted (to become effective in July 2022) which transposes into domestic law Directive (EU) 2019/2162 of the European Parliament and of the Council on the issue of covered bonds and covered bond public supervision.

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

8 April 2022