불가리아 주요 경제뉴스 (20 - 27 July 2012)

BULGARIAN ECONOMIC TOP NEWS DIGESTWEEKLY REPORT(20 - 27 July 2012)

 

Sections/headline briefs:

 

MACROECONOMY:

       S&P ranks Bulgaria in BICRA group 7

       Bulgaria Had EU's Second Lowest Government Debt to GDP Ratio in Q1 - Eurostat

       EBRD keeps Bulgaria’s 2012 GDP growth forecast, lowers 2013 projection to 1.7%

       Nearly 27% of Bulgarian Households Live in Poverty

       Business Climate in Bulgaria Improved Slightly in July

 

INVESTMENTS:

       LAUNCHub to invest EUR 30,000 in nine start-up projects

       Bulgarian Watchdog Slashes Photovoltaic Investors' Profit Margins

 

COMPANIES AND INDUSTRIES:

       VTB Bank, CCB to buy Bulgarian telecom operator BTC

       Bridge construction tender in Bulgaria attracts six bids

       Six retailers in Bulgaria take corrective action after cartel accusation

       Bread price in Bulgaria may increase due to record high wheat, fuels prices

       Prices of Renewable Electricity in Bulgaria to Drop by Further 30%

       Sale of Bulgaria's Three Mobile Operators 'Normal for Market Economy'

 

 

 

 

 

 

 

 

 

 

Articles:

 

MACROECONOMY

S&P ranks Bulgaria in BICRA group 7

International credit rating agency S&P ranked Bulgaria (BBB/Stable/A-3) in Banking Industry Country Risk Assessment (BICRA) group 7 (1- lowest risk banking system; 10- highest risk). Other countries in this group are Hungary, Lithuania, Ireland, Portugal, Russia, and Jordan. The economic risk score of Bulgaria is 7 , reflecting the agency's opinion that Bulgaria faces "high risk" in "economic resilience" and "economic imbalances" and "very high risk" in "credit risk in the economy". Bulgaria has low level of wealth and economic recovery is expected to slow down in 2012 (to 1.5% from around 2.0% in 2011). Furthermore, with exports accounting for around 45% of GDP and coming largely from the eurozone, the country is vulnerable to any abrupt slowdown there. Local banks are still affected by the ongoing economic slowdown, including a rapid decline in the availability of external funding. The government has however demonstrated a strong track record of appropriate fiscal policy and low gross debt despite the recession, according to S&P. The "very high risk" assessment of credit risk in the economy comes as a result of the banks' relaxed lending practices and underwriting standards – credits concentrated in real estate, construction, and development; slow collateral enforcement; private sector indebtedness around 70% in 2012 (higher than some central and eastern European countries) and NPLs concentrated in the corporate sector, with NPL ratio ratio for the whole sector increasing to more than 16% in Q1 2012 from 2.5% in 2008. S&P said Bulgaria's industry risk score is 6 due to "high risk" in its "institutional framework," "intermediate risk" in its "competitive dynamics," and "high risk" in "system-wide funding". Bulgarian banks' risk appetite before the crisis was high but more moderate approach toward credit practices is observed now. Banks do not demonstrate high-risk characteristics, according to S&P. 

 

Bulgaria Had EU's Second Lowest Government Debt to GDP Ratio in Q1 - Eurostat

At the end of the first quarter of 2012, the government debt to GDP ratio in the EU increased to 83.4 per cent from 82.5 per cent in the last quarter of 2011, Eurostat said. The lowest ratios of government debt to GDP at the end of the first quarter of 2012 were recorded in Estonia (6.6 per cent), Bulgaria (16.7 per cent) and Luxembourg (20.9 per cent). The EU's limit on the debt-to-GDP ratio is 60 per cent. Thirteen countries, mostly non-eurozone members and Scandinavian countries, met this criterion in the first quarter of 2012. The highest ratios of government debt to GDP at the end of the first quarter were recorded in Greece (132.4 per cent), Italy (123.3 per cent), Portugal (111.7 per cent) and Ireland (108.5 per cent).

 

EBRD keeps Bulgaria’s 2012 GDP growth forecast, lowers 2013 projection to 1.7%

The European Bank for Reconstruction and Development (EBRD) has kept its growth forecast for Bulgaria for this year at 1.2% but has lowered its projection for 2013 to 1.7% from 2.5% previously, the bank said in the July edition of its Regional Economic Prospects. Bulgaria’s GDP growth in 2012 is expected to be above the weighted average of 0.7% for southeastern Europe, where the country along with Albania will be the fastest growing economy. In 2013, Bulgaria will be second-fastest growing economy, along with Serbia while Romania will post the strongest growth next year (1.8%). Еconomic prospects for the SEE region are highly uncertain due to financial sector vulnerabilities and weakened economic activity in Q1. Growth in the region for the whole year is likely to be minimal at best, the EBRD said. In terms of economic performance in Q1, Bulgaria stands out as the country, which did not report output contraction q/q but rather its output remained flat on the quarter. Recovery will be sluggish in 2012 due to weak export demand. However, the government’s adherence to fiscal prudence, as well as the successful bond issue on international markets were pointed out as positive developments. Inflation in the country is to ease to 2% in 2012 from 3.4% last year. 

 

Nearly 27% of Bulgarian Households Live in Poverty

Nearly 27% of households in Bulgaria live below the poverty line, relying on a monthly income of less than BGN 205 per person, according to results of a survey of the Confederation of Independent Trade Unions in Bulgaria (CITUB) on prices and monthly allowances in June and in Q2, 2012. The results of the CITUB survey indicate that around 600 000 families live in poverty and their number has increased by 3% from Q1, 2012. During the reporting period, prices of electricity and heating steadily increased, the tariff increase reaching almost 11% for the whole year. Monthly allowance per household member amounted to BGN 547 in June. According to forecasts of CITUB, the monthly allowance will reach BGN 556 per person by the end of 2012 and the annual increase will amount to BGN 20. CITUB predicts that by end-2012, the monthly allowance of a 4-member household will increase by BGN 80, the main reasons being the higher prices of electricity and the related price spikes. "This will push up the inflation rate from the level of 1.9% in mid-2012. We believe that the inflation rate will approach 4%," said Plamen Dimitrov, CITUB President. In the period March-June 2012, prices of cooking oil, electricity, clothing and shoes and healthcare services went up. Meanwhile, the increased productivity in sectors like pharmaceuticals and tobacco products did not lead to a growth in workers' payments. "Metal ore mining registered a 17% increase in industrial production, which was accompanied by a 6.4% growth in employees and a mere 2.9% real wage growth," Dimitrov noted.

 

Business Climate in Bulgaria Improved Slightly in July

In July 2012, the total business climate indicator, increased by 1.1% on the month, with improvements registered in the spheres of industry and construction and retail trade, while the services sector posted a decline. The main problems for the business sector as a whole are the uncertain economic environment and the insufficient domestic demand, followed by the competition in the respective sectors, according to data of the National Statistical Institute (NSI). In July 2012, the complex "business climate in the industry" indicator increase by 1.9 percentage points mainly due to increasingly optimistic expectations of managers for the financial condition of the companies over the next 6 months. According to NSI data, the average capacity utilization in July 2012 increased by 1.4 percentage points to 71.3% compared to April 2012. Companies reported a surplus of capacity against the backdrop of the anticipated demand in the months to come. As regards selling prices, managers continue to expect increases over the next 3 months. In July 2012, the business climate in the construction sector increased by 1.6 percentage points. Construction entrepreneurs say that construction activity is improving and their forecasts for the next 3 months remain favorable, although somewhat more reserved, as compared to June. The production schedule has been guaranteed with contracts for 5.5 months, down by 0.5 months from the April assessment. Meanwhile, expectations for new orders in the next six months are more unfavorable. As regards selling prices in the sector, entrepreneurs expect the rates to remain unchanged over the next 3 months. In July 2012, the complex indicator "business climate in retail trade" increased by 1.4 percentage points. There is growing optimism in entrepreneurs' expectations about sales and orders placed with suppliers over the next 3 months. Selling prices in the retail sector are expected to increase over the next 3 months. In July 2012, the complex "business climate in the service sector" decreased by 1.5 percentage points on the month due to the trimmed down expectations of managers about the financial condition of the companies. As regards demand for services, the trend is considered to have improved but is likely to deteriorate over the next 3 months. Most managers expect selling prices to remain unchanged over the next 3 months.

 

 

INVESTMENTS:

LAUNCHub to invest EUR 30,000 in nine start-up projects

LAUNCHub will invest EUR 30,000 in nine start-up projects out of around 800 applications submitted, investor.bg reported. The approved projects will be announced by the end of the week and will receive the financing in return of 8-10% stake of the fund in the companies. LAUNCHub along with Eleven was selected by the European Investment Fund (EIF) to manage a EUR 21mn programme in Bulgaria under the Joint European Resources for Micro to Medium Enterprises (JEREMIE) initiative. The programme aims to accelerate entrepreneurship and provide seed financing. Eleven will manage EUR 12mn, which will be invested in around 200 innovative young businesses. The fund has attracted Google as a technological partner, and London-based Springboard - as a strategic partner. LAUNCHub will manage a EUR 9mn ICT focused fund, which will invest in around 120 projects over the next four years. It will partner with Seed Camp and the Cisco Entrepreneurship Institute Bulgaria. 

 

Bulgarian Watchdog Slashes Photovoltaic Investors' Profit Margins

The State Commission for Energy and Water Regulation (DKEVR) is about to slash purchasing prices of solar-generated electricity in a bid to stem future power price hikes. The new tariffs will most likely enter into force in August, when the energy watchdog is to make a final decision on the matter. Investors in solar power projects will see their profit margin downsized from 20% to 7%, according to reports of private TV station bTV. Angel Semrdzhiev, DKEVR Chair, argued Wednesday that the new tariffs would rein in future electricity price hikes amid the huge investor interest in buildingphotovoltaic parks. He insisted that photovoltaic projects had caused electricity prices to rise by 13% from July 1. According to investors in the sector, the new purchasing prices make investments inrenewable energy sources useless because the 7% profit margin is just about the profit rate on standard bank deposits. The Bulgarian Photovoltaic Association (BPVA) and the Bulgarian Solar Association have vowed to appeal DKEVR's decision to reduce purchasing prices of solar-generated electricity before the Supreme Administrative Court (VAS). According to BPVA Chair Nikola Gazdov, the state is forcing bankruptcy onto a number of investors who decided to invest millions of leva in such projects in the last few weeks or months but have not yet been connected to the energy grid. In Gazdov's words, DKEVR based its decision on the data found on the website of a small German company producing solar panels which had unrealistically low prices. "If they had used data of global producers of solar panels or independent consultancies or financial companies, the prices would not have been slashed as dramatically," Gazdov reasons. At present, 600 MW of photovoltaic capacity have been connected to Bulgaria's grid. Bulgaria's National Electric Company (NEK) and power distributors are now buying electricity from the first solar parks at much higher prices because prices ofphotovoltaic panels were much higher a few years ago. According to DKEVR, prices of photovoltaic panels have decreased substantially, which is why the purchasing prices of the electricity they generate must be seriously downsized. The BPVA believes that DKEVR's actions come too late and the decision simply aims to impose a moratorium on the construction of new photovoltaic parks at least until the parliamentary elections in the summer of 2013.

 

 

 

COMPANIES AND INDUSTRIES:

VTB Bank, CCB to buy Bulgarian telecom operator BTC

Russia's VTB Bank, in partnership with local businessman Tsvetan Vasilev, CEO of country's seventh largest in terms of assets lender CCB, is the likely buyer of 94% of Bulgaria's telecom operator BTC, Capital daily reported after BTC announced on Jul 20 that an agreement had been reached with two financial investors. The new owner will pay EUR 130mn to the senior creditors for the majority share and will assume debts for EUR 588mn. The effective price per share is estimated in the range of BGN 0.81 - BGN 1.92. The deal is expected to be closed by Sep 2012 provided that the creditors and the investors agree on the terms and conditions. The deal is subject to an approval by the competition authorities. In the beginning of April, Turkey's cell-phone operator Turkcell emerged as the likely winner. Turkcell had reportedly made the best price offer but its requirements for blocking a large portion of the sum until state's claims against the former owner are fully clarified, broke the deal. Turkcell was also the only strategic investor interested in the operator. Two other financial investors also participated in the bidding - a company related to Iceland's billionaire Thor Bjorgolfsson, who sold majority stake in BTC to AIG Capital Partners in 2007, and a company from the Pamplona Group. 
BTC was privatised in 2004 after the Bulgarian government sold 65% of the telecom to Viva Ventures Holding, a subsidiary of US private equity fund Advent International, for EUR 280 million, including EUR 50 million for boosting company's capital base. The remaining 35% stake in BTC was sold on the Bulgarian stock exchange in 2005. In December 2005, Thor Bjorgolfsson bought an option for 65% in BTC from Advent International. Landsbanki Luxemburg, controlled by Bjorgolfsson, expanded its ownership in the telecom to 13.38% from 8.39% after operations on the local stock exchange in March 2007. In 2007, AIG Global Investment Group, through its company AIG Capital Partners, agreed to buy Bjorgolfsson's 65% stake in BTC for EUR 1.08bn. In August, AIG completed the acquisition of a 90% in BTC for EUR 1.4bn via transactions on the local stock exchange. In 2009, the state antitrust commission allowed the Cayman Islands-based Bridge Partners, part of Pacific Century Group, to acquire AIG Global Investment Group, which controls BTC through its subsidiary AIG Capital Partners (now renamed to PineBridge Capital Partners LLC). 

 

Bridge construction tender in Bulgaria attracts six bids

Five Bulgarian companies and a local tie-up filed bids for the construction of a bridge on Stryama river, in the south of the country, the Road Infrastructure Agency said on Monday. Varna-based Hydrostroy came up with the lowest price - of 2.995 million levs ($1.8 million/1.5 million euro) - for the construction of the bridge on the Plovdiv-Brezovo road, the agency said in a press release. The other bidders are Patengineering, Patishta i Mostove, Patishta Plovdiv, ISA 2000 and a tie-up of Integrated Road Systems, IPS Infrastructures and Kalistratov Group.

 

Six retailers in Bulgaria take corrective action after cartel accusation

Six local retailers (Metro Cash&Carry, Billa, Kaufland, Hit, Maxima Bulgaria, and Piccadilly), which were accused of acting as cartel in 2011, have agreed to amend their trade policy concerning goods supply, the antitrust commission said in a statement. The hypermarkets will drop the clauses that impose restrictions on suppliers regarding the pricing of the goods supplied. Even without direct agreement between the chains, the simultaneous presence of such clauses in the contracts with identical suppliers could lead to deliberate coordination and the prompt elimination of this possibility is of key importance for the normal functioning of competition, the regulator has concluded. In 2011, the state antitrust regulator said that the retailers have applied common mechanisms in coordinating their trade and marketing policy. The retailers have indirectly exchanged sensitive information regarding supply prices and competitors' marketing strategies. Also, they have applied vertical agreements for setting supply prices and discounts, as well as trade areas fees. Thus, the six companies have violated the competition protection act. 

 

Bread price in Bulgaria may increase due to record high wheat, fuels prices

Bulgarian agriculture minister Miroslav Naydenov said that increase in the price of bread can reasonably be expected due to record high wheat and fuels prices. Naydenov did not provide specific price increase forecast. The chairman of the association of bread producers in Bulgaria also said yesterday that bread price will definitely rise and the actual price hike will be felt following the summer months when bread consumption increases. Bread is the only commodity which has not appreciated substantially for years, Naydenov added. Record high temperatures this summer and lack of rainfalls threaten to deteriorate the quality of maize, which may lead to price hike of animal feed and may respectively result in higher price of milk and meat as well. 

 

Prices of Renewable Electricity in Bulgaria to Drop by Further 30%

Delyan Dobrev, Bulgaria's Minister of Economy, Energy and Tourism, has vowed that prices of electricity generated from wind, water and sun will drop by another 30% to defend the public interest. Speaking Thursday at the signing of contracts for energy efficiency grants, Dobrev specified that renewable energy prices had dropped by up to 50% at the beginning of the month. He noted that "important and necessary" amendments to the Renewable Energy Sources Act had made it possible to change prices at any time of the year, rather than once a year. "This guarantees the protection of the public interest. only this will allow us to cool down the enthusiasm in the sector caused by the inflated preferential prices and high profits that accompany such projects," Dobrev reasoned. He said that the new reduction of renewable energy tariffs would also eliminate pressure on prices of other commodities. Prime Minister Boyko Borisov, who attended Thursday's ceremony, explained that a total of 243 buildings in the country would be granted a total of EUR 47 M to boost energy their efficiency. Borisov added that this was the biggest energy efficiency project implemented in Bulgaria. "Bulgarians are paying electricity prices negotiated in the past and the only way to get out of this situation is to cut costs through energy efficiency," the Prime Minister remarked. He further argued that the 30% savings from energy efficiency measures equaled the electricity generated by one and a half nuclear reactor. Borisov claimed that the money for energy efficiency measures were great support for municipalities in times of crisis and would contribute to job creation. Bulgaria's Prime Minister concluded that it was better to spend BGN 100-300 M on energy efficiency, thereby creating new jobs, than to spend BGN 20 B on a new nuclear power plant.

 

Sale of Bulgaria's Three Mobile Operators 'Normal for Market Economy'

Change is afoot in Bulgaria's mobile market with all three operators put up for sale, but experts describe the unprecedented situation as business as usual. "This is a normal situation for a country with market economy. Everything is up for sale. It is only logical that an owner, who needs urgently financial resources in times of a global economic crisis, will be looking to offload its most valuable asset," Antoni Slavinski, chairman of the Telecommunications association, told Trud daily. Bulgaria, a nation of 7.7 million people has three mobile operators, which are foreign owned and whose ownerships are expected to change hands this year. Bulgaria's first and biggest mobile operator Mobiltel is controlled by Telekom Austria, while Globul is the local unit of Greece's OTE. Bulgaria's incumbent telco BTC, which operates under the brand name Vivacom, is controlled by PineBridge Investments, part of Hong Kong tycoon Richard Li's empire. Greek group OTE, the biggest telecoms operator in southeastern Europe, announced earlier this year that it plans to sell its Bulgarian units to help refinance EUR 3.4 B debt maturing in the next two years. Meanwhile Mexican tycoon Carlos Slim made a deal to acquire 21% of Telekom Austria AG, which will translate into changes in the Bulgarian unit Mobiltel. BTC sale, the longest awaited deal, is also just about to see a denouement. Last week it emerged that the creditors of the debt-laden fixed-line incumbent have agreed its sale terms. Bulgarian lender Corporate Commercial Bank (CCBank) and Russian peer VTB Bankare set to take over debt-ridden Bulgarian telecoms company Vivacom, Tsvetan Vasilev, chairman of the supervisory board of CCBank, told Bulgarian newspaper Capital Daily. VTB Capital, a VTB Bank subsidiary, declined to comment.

 

 

 

 

 

 

Reported by:

GeorgiIliev

KOTRA Sofia

Korea Trade-Investment Promotion Agency

Commercial Section of the Embassy of the Republic of Korea