- The buyer of the former state-owned tobacco monopoly - Vienna BT Invest, no longer owns a stake and no party is liable for the unfulfilled privatization contract
Just seven-and-a-half years - that was the lifespan of Bulgaria's largest cigarette maker Bulgartabac as a private company. The holding controlled by Delyan Peevski - a member of parliament from the Movement for Rights and Freedoms (MRF), has closed the last of its production facilities - in Blagoevgrad.
Peevski has been one of the main business players in Bulgaria over the past decade and due to his political contacts has excessive influence whenever public tenders are involved. authorities. The former global tobacco player, which by the late 1960s was the number one tobacco exporter in the world, by the late 1980s was already in decline. Bulgartabac continued to play a major role in the international markets, but the protracted privatization led to its slow decay.
It was finally privatized in 2011 by Peevski-related firms after the sale had been consistently thwarted for years by the party of which he is a member. The official reason for MRF's resistance was concern about jobs, as many of the party's voters - Bulgarian ethnic Turks - were employed in tobacco production. The put-up privatization process drove away all of the world's tobacco majors with its requirements for tobacco purchases from local growers. Now "one of theirs" has closed down production.
For Peevski, operation 'Bulgartabac' was successful. By selling the brands and local distribution to British American Tobacco (BAT) for 100 million euro, he has recouped his investment. Apart from recovering his money, a bonus is that he will also keep the real estate of the ex-tobacco giant and the dividend withdrawn over the years. For the Bulgarian economy and the treasury, the loss of several manufacturing enterprises with over 1,500 employees represents a missed premium. As for the authorities being able to impose a penalty on the buyer -Vienna BT Invest, the chances are virtually nil. First, because it no longer owns even one share in Bulgartabac. And second, the authorities have so far swung their support behind the buyer.
THE LAST CONVULSION OF THE FORMER GLOBAL TOBACCO PLAYER
Following the sale of the cigarette brands to BAT and the loss of exports to the Middle East (part of them ending up as smuggled imports into Turkey) over the past two years, Bulgartabac's business plummeted. In April 2016, 400 people were laid off at Sofia's BT cigarette factory. Several months later, the Blagoevgrad unit's decay began: just 200 employees were on the payroll compared to 1040 at the time of privatization. Only eight people are now listed as staff in the once 400-strong team at the tobacco factory in Pleven.
The end became apparent in early 2019 when it emerged that the remaining 200 employees in Blagoevgrad had been sacked late last year due to the lack of contract orders. Bulgartabac Holding's consolidated sales fell by 31% year-on-year to 239 million levs in the third quarter of 2018 despite the acquisition of two companies related to Delyan Peevski - Technomarket (black and white household appliances) and Lodis Invest (dairy producer). The holding company swung to a 10.7 million levs loss and the income per share decreased by 80% to an estimated 1.14 levs.
Bulgartabac used to be the company with the largest market capitalization on the stock exchange in Sofia - over 650 million levs. Its stock exchange valuation has recently plummeted to 89 million levs, the share price falling from about 30 levs at the beginning of 2018 to 12.6 levs in January 2019.
The managers of Yuri Gagarin - the Plovdivbased cigarette packaging and consumables factory which is still in the orbit of Bulgartabac despite its reduced shareholding -did not comment on how the closure of production of one of their big clients would affect the company. However, the drop in Yuri Gagarin's share price is in line with Bulgartabac's - from levels above 35 levs to 17 levs, corresponding to a market capitalization of less than 20 million levs.
"It turned out that it was very difficult for the new owners [of Bulgartabac], and their management did not work out how to deal with this specific business. There were no new contracts; Bulgartabac remained reliant on old contracts, old specialists, old tobacco and materials suppliers, and did not make any progress. This is the end," said Yuli Manoylov, chairman of the tobacco branch of Podkrepa KT trade union.
TURNING A BLIND EYE
The owner of the Bulgartabac factory in Blagoevgrad has not notified the stock exchange or the Privatization and Post-Privatization Control Agency (APIA) of the redundancies. If Bulgartabac Holding ceases production of cigarettes before 2021, it will owe a penalty amounting to the acquisition price - 100 million euro.
"At present, APIA does not have information about the final closure of Blagoevgrad BT," the agency said after the news of the redundancies in Blagoevgrad was announced.
The problem is that BT Invest, which bought Bulgartabac from the state in 2011, has no longer owned any shares directly since the middle of last year. The ownership of Bulgartabac's shares is split among three offshore companies - two based in Liechtenstein and one in Dubai. Thus, even if the state seeks penalties, the fine will probably only go to the empty Austrian-registered company.
In theory, one or two workers can always be kept on the payroll and they can produce a box of cigarettes per day in a garage with Bulgartabac on it, so that the conditions of the privatization contract are met. The Financial Supervision Commission has also been traditionally passive on the Bulgartabac topic. It only noted that there is no publicly disclosed information about the closure of the factory in Blagoevgrad. No matter that the media reported the news, and it certainly affects the share price and it should have been announced by the owner in accordance with the law.
If the loss of 2000 jobs had happened to any other investor in Bulgaria, the political fallout would have been great. The attempt of Bulgartabac to shut down in a similar way its factory with only 100 employees in Banja Luka, in Bosnia and Herzegovina, sparked strong opposition from the local authorities in 2018. In Bulgaria, however, the silence is deafening, and the only explanation is the name of the owner.