market WRAP-UP
The market dropped 20% for a week reflecting dramatic news coming from the US and the European bank sector. SOFIX slid down to 585 bps. (-22.1%) reaching levels we saw in 2004. BG40 and BGTR30 followed this move and dropped to 152 bps. (-18.1%) and 404 bps. (-18.4%), respectively. The REIT market also lost altitude as sell pressure overcame any resistance levels which pushed BG REIT down to 62.8 bps (-17.8%). Currently, market players are price insensitive as liquidity needs and the fear of falling markets rule the market. Notwithstanding, first financial reports for Q3 reported last week show stable performance and we see that the first signs from the Bulgarian banks in Q3 are positive.
news HIGHLIGHTS
- The cumulative inflation in Sept reached 8.0%, 11.4% up YoY.
- The total industrial production in Bulgaria has gone down in the month of August by 13.1% MoM, according to the National Statistics Institute.
- The Bulgarian government said it would urge BNB to increase the deposit insurance to €50k, from €20k at present.
- The Leonia rate, which is used for the calculation of the base interest rate in Bulgaria reached record levels of 5.76% on Oct 8 (as compared to 5.25% on Sept 8).
- Bulgaria’s national power grid operator NEK selected German RWE to be the strategic investor in the construction of the Belene nuclear power plant, acquiring 49% of the project.
- The worst-case scenario of the Ministry of Finance is for a slowdown of the economic growth next year to 3%, as envisaged in the 2009 draft budget.
- Bulgaria will seek talks with Russian gas major Gazprom to increase by an extra 500m cu.m. the 3bn cu.m. it gets a year, because of growing consumption, Economy and Energy minister Petar Dimitrov said.
- In Jan-Sep 44 500 new cars, trucks and buses have been sold in Bulgaria (18.3% YoY growth), data from the Association of Car Manufacturers and Authorized Representatives showed.
- Sofia Municipality’s stake in Municipal bank should be privatized at a public auction, but all participants should be pre-approved by BNB, the municipal council decided. The municipality’s stake in the bank is 70.5%.
- The net assets of Bulgaria’s mutual funds have slid 20% QoQ to just above BGN 690m.
- Bulgarian general insurers collected BGN 953m in gross written premiums in the eight months through Aug, up 22% YoY. Payments on claims were BGN 384m, up 30% YoY. Bulstrad is the market leader with a 16.7% share. Euroins [5IC] ranked 8th with 5.4%. The life insurance market reported a 24% YoY growth in premium income to BGN 171m.
- Industrial Holding Bulgaria (IHB) auctioned all unsubscribed rights from its convertible bonds issue on 9 Oct. All 17m rights were bought. The bonds should be subscribed by 24 Oct.
- Financial Supervision Commission (FSC) approved the public offering prospectus of FairPlay Agricultural Fund, a unit of Bulgarian property developer FairPlay International.
SOFIX / BG40 (chart)
BGTR30/ BG REIT (chart)
| SOFIX | BG40 | BGTR30 | BGREIT | |
| 1-wk | -22.1% | -18.1% | -18.4% | -17.8% |
| 3-mo | -47.1% | -46.8% | -44.6% | -32.3% |
| YtD | -66.3% | -70.5% | -62.8% | -40.0% |
| 12-mo | -69.5% | -75.2% | -66.5% | -39.7% |
Top Gainers*
| Petrol [5PET] | 23.0% |
| Bulgartabac Holding [57B] | -5.0% |
| Lead and Zinc Complex [5OTZ] | -5.7% |
Top Losers *
| Bulgarian American credit Bank [5BN] | -48.1% |
| Kapitan Diado Nikola [3KN] | -37.9% |
| Enemona [E4A] | -34.6% |
* from our list of selected stocks (see last page)
| Turnover statistics | Week 41 |
| Weekly volume (shares) | 35 990 849 |
| Avg. weekly volume YtD | 12 893 868 |
| Weekly turnover (BGN) | 50 266 037 |
| Avg. weekly turnover YTD (BGN) | 52 884 932 |
FIXED INCOME AND MACRO DATA
Most recent macro data
| BGN/EUR exchange rate | 1.95583 |
| Inflation (HICP, YoY Sept) | 11.4% |
| Inflation (HICP, cumulative 2008) | 8.0% |
| GDP Growth (YoY H1 2008) | 7.1% |
| Unemployment (Aug 2008) | 5.9% |
| Public External Debt/GDP (Aug '08) | 10.2% |
| FDI Jan-July '08 (EUR) | 2.8bn |
| C/A Deficit/GDP (Jan-July '08) | -13.9% |
Source: BNB; NSI; National Employment Agency
| Type | Coupon | Maturity | Currency | Yield (%) |
| Treasuries | 3.75% | 16-Feb-10 | BGN | 6.05 |
| Treasuries | 4.75% | 11-Feb-11 | BGN | 6.00 |
| Treasuries | 5.20% | 04-Feb-14 | BGN | 6.12 |
| Eurobonds | 8.25% | 15-Jan-15 | USD | 6.39 |
| Sofibor | Overnight (ON) | BGN | 5.90 | |
| Sofibor | 3-month | BGN | 7.55 | |
| Sofibor | 12-month | BGN | 8.80 | |
| Base Interest Rate | BGN | 4.96 |
Source: BNB; UBB
news IN THE SPOTLIGHT
Energy Sector
Employers and trade unions to challenge new gas price
The Confederation of Employers and Industrialists in Bulgaria (CEIBG) is likely to contest the regulator decision about the gas price increase, chairman Ivo Prokopiev told Darik Radio. The Bulgarian Chamber of Commerce and industry (BCCI) and trade union CITUB requested on Monday that the new price be halted until the court has come up with a decision. Under local energy legislation, the new prices will be in place until the judges have had their say on the issue. If they rule in favour of employers and unions, the prices will be cut as of the date the final decision takes effect. The price of gas was raised by 23.9% from October 1 against the 28.9% proposed by the regulator and the 36.5% requested by state-controlled gas distributor Bulgargaz. The price will crawl by a further 21.4%, or a total of 50%, over the next three months. Source: Dnevnik
Kremikovtzi AD [4KW]
Pravin Banker offers that Kremikovtzi be nationalised
Investment banker Pravin Banker called to Bulgaria’s Prime Minister Sergei Stanishev in an open letter forwarded to Dnevnik daily to nationalise steel mill Kremikovzti. The financier, who has some experience in rescuing metallurgical companies and has kept an eye on Kremikovtzi since 1998, put forward an action plan to help Bulgaria get away with EU punishment. The plan includes that the state as the mill’s biggest creditor, should propose a restructuring plan to recover the company and sign a three-year management contract with a strategic investor which should be given a call option. Only companies with annual steel output of 15m tones should qualify for the competition. Next step in the rescue plan should be creating a supervisory committee to manage the process. The mill may also be delisted from the Bulgarian Stock exchange provided that minority shareholders are compensated.
All proven debts should be rescheduled into a new seven-year bond with a 7% coupon.
The plan also stipulates that the state should become the company’s sole shareholder and take a EUR 350m loan to finance the mill’s eco and investment programmes. The indicative price for the operating manager and the call option should be set at EUR 150m and immediately injected into the company. Source: Dnevnik
Olovno tzinkov complex AD [5OTZ]
The merger of Gorubso ROF into Gorubso-Madan was finalised
The procedure for the merger of Gorubso ROF into Gorubso-Madan is complete. On September 30, the change is entered into the Commercial Register, thus Gorubso-ROF ceases to exist, and all assets, including rights and obligations, are passed to the successor company, Gorubso-Madan. The capital of the new company is BGN 780k, allocated into 780k shares with a face value of BGN 1.
At the Annual General Meeting of Lead and Zink Complex [5OTZ] held on July 10 the company’s shareholders rejected the proposal for a merger between the company and Gorubso-Madan. Instead of that the shareholders decided that after the absorption of Gorubso ROF by Gorubso-Madan the management of Lead and Zink Complex should start negotiations for the purchase of shares in Gorubso-Madan, as the negotiated terms of a potential deal shall be presented at an extraordinary meeting. Source: Investor.bg, FFBH
Pension Funds
Pension funds 24-months average annual yield shrinks but remains positive
The Bulgarian pension funds reported positive average profitability for the 24-month period from Sep 29, 2006 – Sep 30, 2008 but it shrank from record-high level in end-Summer 2007. The average annual yield of the universal funds over the period was 2.36%, while professional pension funds reported 1.44%. The Financial Supervision Commission set the minimum annual yield, which is calculated on monthly return, for the last 2-year period at negative 0.64% for universal pension funds and negative 1.56% for professional funds. Lukoil Garant was the only universal fund above the upper limit of 5.36% with 5.7%.
For the first half-year the insurance system in the country has been managing assets at BGN 2.39bn and insured 3.5m people. Source: Dnevnik, FSC, FFBH
SELECTED STOCKS INDICATORS (table)
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