Bulgaria’s Competition Watchdog Allows Purchase of Bank Shares at above Market Price

Nikolay Marchenko

The Bulgarian Commission for Protection of Competition (CPC) failed to discover any evidence of a monopoly in the acquisition of part of the capital of First Investment Bank (FIB) by the State-owned Bulgarian Development Bank (BDB). Prime Minister Boyko Borisov demanded on June 12 that his now ex-Ministers Vladislav Goranov and Emil Karanikolov assure the media that FIB would buy back its shares “with interest”. The Co-Chair of the center-right opposition party Democratic Bulgaria Vladislav Panev and attorney Albena Belyanova are suing the government for the above decision in the Supreme Administrative Court (SAC). In addition, private Czech investor in FIB Karel Komarek Jr. is a partner of Gazprom and has money in Liechtenstein, His sister tops the Forbes list of the richest Czech women but her name has also emerged in the “Paradise Papers” leak.

Citing the Protection of Competition Act, the CPC said it had “established that the acquisition of 18.35% of the share capital of First Investment Bank by Bulgarian Development Bank does not constitute a cartel agreement within the meaning of Art. 22, para. 1, item 2 of the Act”.

At the same time, FIB shareholders, oligarchs Tseko Minev and Ivaylo Mutafchiev, whose dealings and fraud through FIB had been a frequent topic of Bivol’s publications for years, retained full control of the Bank.

According to the competition watchdog, “no amendments to the Articles of Association of FIB are envisaged, concerning the manner of decision-making by the management bodies of the company”.

ACT 612 23.07.2020

The two majority shareholders will still have the opportunity to veto decisions that are essential to the Bank’s competitive abilities.

“In cases where the entire share capital is not represented, Tseko Minev and Ivaylo Mutafchiev, in view of their shareholding, could make the relevant decisions on their own.”

The CPC failed to notice a problem in the fact that the State-owned BDB would not be able to influence the decisions of FIB’s management.

“Given the long-term and lasting economic interests of the two individuals (Tseko Minev and Ivaylo Mutafchiev – editor’s note), it can be assumed that they will continue to pursue a unified policy regarding the commercial behavior of FIB. The entry of the BDB as a shareholder does not provide it with rights, including specially agreed ones, through which to exert a decisive influence on the commercial behavior of FIB”.

At least one of the CPC members has experience in the highest levels of government and could, if she wished, vote against the FIB deal. This is Anna Georgieva Yaneva, who was Deputy Minister of Economy and Energy in two governments of the now opposition Bulgarian Socialist Party, BSP (2005 – 2009 and 2013 – 2014).

The newly appointed Bulgarian Minister of Economy Lachezar Dimitrov Borisov (Chairman of the Supervisory Board of the BDB since 2017 in his capacity of Deputy Economy Minister) was Yaneva’s subordinate in the Ministry of Economy in 2005-2008. In 2007, he was even appointed Head of the Departments “Restructuring and Capital Markets” and “Management and Restructuring of State Participation”.

During this period, he was also Head of Departments “Investment Projects, International Programs and Marketing” and “Strategic Analysis and Forecasting”. He is currently a member of the Management Board of the Energy Efficiency and Renewable Sources Fund, according to the Ministry’s website.

Bivol’s check in the Commercial Register shows that in 2008 Lachezar Borisov was on the Board of Directors of Madara Shumen, a subcontractor company of the Ministry of Economy for the Kozloduy Nuclear Power Plant (NPP) with at least one public procurement for over BGN 15,000.

In 2008, Borisov was also on the Supervisory Board of power utility CEZ Distribution Bulgaria, at a time when the institution in charge, the Ministry of Energy and Economy (MEE), usually had three representatives in the supervisory boards of each of the three power utilities due to a 33% state share. Borisov was on the Board of CEZ together with Ivanka Georgieva Dilovska who was then a Director in the MEE and with Eisehel Hayredin Rufi-Husmen, a cadre of the Movement for Rights and Freedoms (DPS), the party largely representing the Bulgarian Muslim minority and a member of the political cabinet of the then-Minister of Economy and Energy Petar Dimitrov in her capacity of Director of the Public Relations and Protocol Directorate.

In 2009, Lachezar Borisov was on the Board of Varna West Industrial Zone at the National Company Industrial Zones under the MEE. In 2013, he was even promoted to Chairman of the Board of Directors of the National Electric Company (NEC), part of the Bulgarian Energy Holding (BEH) at the MEE, which is now almost bankrupt due to projects such as the Belene NPP.

According to Borisov’s LinkedIn profile, he held the later post only from May to September 2013 and joined the Board of the BDB six months after the appointment of the scandalous former lawmaker from the ruling party Citizens for European Development of Bulgaria (GERB) and former Head of the Financial Supervision Commission (FSC) Stoyan Todorov Mavrodiev as BDB Executive Director.

Vladislav Goranov’s secret deal

According to the minutes of the emergency meeting of the Council of Ministers on June 12, 2020, the then-Minister of Finance Vladislav Goranov tried to familiarize the cabinet members with a report on FIB, recalling the stress test of the European Central Bank (ECB) from the summer of 2019.

“The last thing left is the implementation of the plan for providing additional capital buffers by First Investment Bank to receive a positive opinion from the ECB in early July to establish close cooperation between the BNB (the Bulgarian National Bank, the central bank – editor’s note) and the ECB.”

VLADISLAV GORANOV: Four of the six banks that were subject to a comprehensive inspection also passed the stress test’s negative scenario. As of March 31, 2020, Investbank managed to fill the identified gap under the negative scenario of the stress test. By the end of 2019, First Investment Bank also managed to build…

PRIME MINISTER BOYKO BORISOV interrupts: Goranov, aren’t you going to explain this to the Bulgarian people?

VLADISLAV GORANOV: I want to inform the government.

BOYKO BORISOV: Yes. The government, insofar as it is within the competence of colleagues ministers to understand is that it is extremely important to join the Banking Union because this guarantees not only the stability but also the supervision of all Bulgarian banks.
And secondly, the Eurozone’s waiting room provides additional certainty that we will join fast-speed Europe. And that we will not fall into the slow-speed one. There are many other advantages, but let’s not repeat stuff. So, if the colleagues are OK, let’s approve point one on the agenda and go down to the journalists to answer their questions.

Then Vladislav Goranov announces that he and the then-Minister of Economy Emil Karanikolov offered to “adopt the following protocol decision” on the basis of the Rules of Procedure of the Council of Ministers and its Administration:

1. Approval of the report by the Minister of Economy and the Minister of Finance.
2. The participation of the Bulgarian Development Bank in the capital increase of First Investment Bank to be carried out under market conditions and up to 70 percent of the total volume of subscribed and paid shares, according to the report under item 1.
3. The Minister of Economy shall notify the management and control bodies of the Bulgarian Development Bank of the decision under item 2.

Minutes of meeting 40

Here, too, Boyko Borisov declares what economists and financiers have been demanding for months:

“And very important – to emphasize that after that they will be bought out by the Bank at interest rates and this will not cause any losses whatsoever to the BDB and the State. That must be explicitly written down.”

“I am closing the meeting,” says the Prime Minister. There was no comment on how and on what exact terms the BDB had negotiated the deal with FIB.

A lawsuit against the government because of FIB

Vladislav Panev announced on Facebook on June 27, 2020 that together with Albena Belyanova, they had filed a complaint with SAC about the decision for the purchase of shares from FIB by the BDB for BGN 5 each.

The 10-page complaint has not been published so far in its entirety and was provided exclusively to Bivol by Albena Belyanova.

Complaint v2

“The stock exchange price is currently BGN 2.60, which means that the State will acquire shares at a price that is almost twice higher. With an investment of BGN 140 million, this means a loss of nearly BGN 70 million,” Vladislav Panev wrote on June 27, 2020.

“If we win, the new economy minister and his colleagues at the State bank will sooner or later be brought to justice for mismanagement and damage on a particularly large scale.”

At the end of July, Panev voiced outrage by “the lies and the illiteracy of the government”, which “came to light in the decision of the CPC to allow the BDB to buy a stake in FIB”.

He reminded that Emil Karanikolov had promised that the State would have representatives in the management of the Bank, but the general meeting of FIB did not allow changes in the Supervisory Board.

According to Panev, in “normal” countries the State enters private banks or companies “at prices lower than market prices”. He gave the example of Germany, which bought 20% in the national flag carrier Lufthansa at EUR 2.56 per share against a market price of over EUR 9, or 73% cheaper.

“Here, Bulgaria buys at double the price and does not negotiate anything in public. Tseko and Ivaylo will continue to have full control. Which suggests that there are secret agreements. Because no one shells BGN 140 million like that without getting anything back. If the state is getting nothing back, then someone else had profiteered. There is no other option,” the politician wrote.

“The deal was obviously made at such a price so that the main shareholders in FIB would retain their full control… This is a betrayal of public interest,” Panev told Bivol.

He admitted that if the Prime Minister and Vladislav Goranov had not forced the deal for FIB, then this “probably” would have delayed our entry into the “waiting room” (ERM II) of the Eurozone. “But as everywhere, the State should be in a strong position and dictate the conditions for the purchase price and the control. Here the price is high and there is no control,” is Panev’s opinion.

According to him, the rule in Bulgaria is for the State to conclude unprofitable deals, and it is completely intentional.

“That’s what happens with public procurement, with public-private partnerships, that’s what happens when it buys shares,” he said, adding that the current government “obviously likes this model, so it wants more and more of it”.

“It is absurd, with this mentality we will be the last in the line,” Vladislav Panev concluded.

It would be incorrect to think that the deal is being attacked only by Democratic Bulgaria, as left-wing politician Georgi Kadiev also criticized it a few days ago. “The state receives only 26% in FIB instead of 52% with this investment at twice the market price,” said the former BSP MP and municipal councilor during an evening political TV talk show. According to him, the Czech billionaire, whose fund is part of FIB, is “obviously a strawman”.

“That’s why he will most likely get his piece of the gambling cake in Bulgaria. And this will be the compensation for his participation in the deal,” Kadiev predicted.

No comment for Bivol

“We are not commenting” was the position of the Ministry of Finance two weeks after Bivol sent its list of questions about the deal to Vladislav Goranov, Emil Karanikolov and the management of the BDB. The Deputy Prime Minister for European Union (EU) Funds Tomislav Donchev promised to assist our media. “I will check why you still do not have an answer,” he said.

FIB announced on its website on July 2, a day before the finalizing of the deal on the Bulgarian Stock Exchange (BSE) that it had increased its capital through the BDB by 18.35% and Valea Foundation, a family foundation of Czech billionaire Karel Komarek by 7.87%. We do not know whether it is a coincidence or “full synchrony” in the actions, but on the same day, July 2, the BDB announced on its website that FIB was among the three new banks that had “signed agreements to join the portfolio guarantee program in support of liquidity of small and medium-sized enterprises affected by the COVID-19 pandemic”.

The key issue for Bivol is a persistent rumor, the authenticity of which was confirmed to us by three independent sources from the country’s financial circles that Boyko Borisov had undertaken to stabilize FIB with State money in a letter to the new ECB President Christine Lagarde prior to the FIB deal.

“Has a letter been sent on behalf of Prime Minister Boyko Borisov to the ECB President Christine Lagarde in April 2020 with the assurance that the State would buy a stake in FIB to fulfil the criteria for joining the ERM II? If it was sent, why is it not public, as it concerns taxpayers’ money and not the funds from the ruling party’s accounts?”, we asked.

The question was also sent to the new Minister of Economy Lachezar Borisov, who then headed the supervisory board of the BDB, to the senior BDB economist Iliya Lingorski and to Tomislav Donchev. We did not receive answers, despite the assurances of the Director of the Public Relations and Protocol Directorate of the Ministry of Economy Nikolay Raichev that the questions had been “sent to his colleagues”.

However, communication with Christine Lagarde is referred to in the same minutes of the meeting of ministers on June 12:

“All the requirements that were set, after several talks, after each stage with Christine Lagarde, the subject has been closed with the ECB, then we went to the auction yesterday, closed it, in the evening we spoke again with Commissioner Vestager, who congratulated us on the strict, proper observance of absolutely everything we have agreed with the ECB and the European Commission, as our goal is to end this process in July, and once and for all Bulgarians not to be afraid that someone will bankrupt their banks, because you know we have champions, some of our political opponents managed to bankrupt 15-16 banks, others only one, of course, but with great effort, we manage to bring back these billions, but it takes years”.

Komarek’s sister “pops up” in the Paradise Papers

At the same time, the private buyer of shares in FIB, Karel Komarek Jr., is a controversial figure. He is the son of Czech entrepreneur Karel Komarek Sr. but has declared himself the founder of the Czech holding KKCG with offices in Prague, Lucerne, London, Amsterdam and Boston.

Energy and gambling are his main business. “More than 100 years of tradition in oil & gas production” boasts the holding’s official website. One of its subsidiaries, MND Group, is a partner of Gazprom. A photo on the website of the Russian State monopoly shows Karel Komarek Jr. with the Vice President of Gazprom Alexander Medvedev.

According to Czech media, the Valea Foundation is technically the owner of KKCG holding, while Komarek Jr. is the sole beneficiary of the Foundation’s proceeds.

But Komarek is not the only one who participated in the financing and transformation of KKCG into an energy and construction empire. This was the family holding company, from which Karel Komarek Jr. separated in 2010. At that time, his father, uncle and sister retained control of some companies that had previously been part of KKCG. They have the same ownership structure, including a number of foundations in Liechtenstein.

Forbes estimates Komarek Jr.’s fortune at USD 3.8 billion. In this year’s ranking of the US magazine “Billionaires 2020,” he is No. 648 among the richest people in the world.

“He formed the Sazka Group in 2016, and quickly became the largest lottery owner in Europe,” Forbes wrote.

It is believed that Karel Komarek had been interested in gambling assets in Bulgaria especially in Eurofootball of fugitive Bulgarian gambling tycoon Vassil “The Skull” Bozhkov.

Komarek Jr. is not a very public entrepreneur. Colleagues from Bivol’s partner in the Organized Crime and Corruption Reporting Project (OCCRP), the Prague-based Czech Center for Investigative Journalism Investigace.cz, however, have been able to obtain interesting information about his business.

“We only came across the Komarek family once during our work, and that was during the Paradise Papers investigation. However, it was about Karel Komarek’s sister.”

In 2017, Investigace.cz found in the Paradise Papers a “complex network of companies” of Karel Komarek’s sister, Jitka Komarkova Cechlova and her husband Ales Cechel and described it in their article “Czechs in Paradise Papers”.

“She acquired most of her fortune from the division in 2010 of the family holding KKCG, built by her father and her brother in the early 1990s. The holding was divided into oil and gas and construction assets. The non-gas business was inherited by Karel Komarek Jr., while the construction business went to Karel Komarek Sr., his daughter Jitka and his brother Frantisek Komarek.”

Following the division, Yitka Komarkova also acquired control of a majority stake in KKCG’s construction business, which includes machine building – Bonatrans, a railway wheelsets manufactory in Bohumin.

According to the Forbes Česko magazine, Jitka Komarkova is the richest woman in the country with a fortune of over CZK 8 billion in 2017 and CZK 4.8 billion in 2019.

“She controls the company together with her husband Ales Cechel but their rise to the top has not been an easy one. Komarkova is still suing her father for his share. According to Karel Komarek Sr., his daughter deprived him of his share in Bonatrans,” Forbes.cz writes.

According to the founder of the family empire, this happened “through a network of offshore companies”. The Komarek family decided in 2015 to settle the dispute over the family business in court, but the case dragged on, both in 2017 and 2019.

“The leaked documents describe the ownership structure of both Bonatrans and the Cayman Islands company Malverine Limited, which transferred EUR 11 million to the Liechtenstein-based Santon Foundation in 2013. The foundation also belongs to Jitka Komarkova-Cechlova,” Investigace.cz wrote.

The media quoted a letter from Malverine Limited CEO Richard Macmillan to the Appleby Law Firm:

“After a series of serious disputes with her brother, Jitka and her father decided to leave the joint business with Karel Komarek Jr., so the current financial group was created.”

“However, family relations remain strained and unjustified attacks and attempts to undermine the division of the original financial group continue,” the lawyer concluded at the time.

Jitka Komarkova and Komarek Sr. declined to comment on the dispute with Komarek Jr. or whether the offshore structures in Panama and Liechtenstein are their property.


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