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Bulgaria: Equity In Demand As Bourse Prepares To Open

Prague, 15 October 1997 (RFE/RL) -- International financial analysts say Bulgaria could be one of the world's next hot spots for equity investment.

With that forecast in mind, foreign investors will be closely watching the launch next Wednesday of the Bulgarian Stock Exchange-Sofia.

That's because for now, there is no legitimate stock market in Bulgaria and most shares in Bulgarian firms cannot be legally traded. Yet in recent months, demand has increased for Bulgarian equity as stocks emerge from a privatization program recently relaunched by the pro-market government of Prime Minister Ivan Kostov.

Even without an exchange, Bulgarian brokerage houses have managed to do brisk business in the past four months by selling forward contracts on shares. Under this quasi-legal system, buyers have been making down payments on shares that they hope will be handed over after a proper exchange in launched.

Many local and foreign investors are still unwilling to risk such investments. But financial analysts in Sofia estimate that sales of forward contracts have been totaling about $50,000 per week in recent months.

Guided by an International Monetary Fund program, Bulgaria's new reform program is strengthening confidence that Bulgarian stocks may soon be a profitable investment.

Nikolay Stoykov, head of markets at the Dutch-based ING Bank's Sofia branch, told the "Wall Street Journal" recently that he expects Bulgarian equities to bring the same kind of profits that foreign portfolio investors already have received in other Eastern European stock exchanges, such the Russian equity market.

Initially, the trading floor of the Bulgarian Stock Exchange-Sofia will be open only two hours a day -- from 10 a.m. until noon. A statement from the exchange says the first shares to be traded will be in the 1,050 companies that are being sold through the government's privatization program.

Later, the government reportedly plans to use the exchange to sell stakes in state companies such as the Bulgarian Telecommunications Co., the National Electricity Co., and the Bulgarian Shipping Co.

A major oil refiner, Neftochim, and national air carrier Balkan-Bulgarian Airlines are expected to be listed next year, but details on those sales are not yet finalized.

Sofia's two main stock exchanges closed down more than two years ago because of lack of interest. At the time, the policies of Socialist Prime Minister Zhan Videnov's government were effectively chasing foreign investors out of the country.

Local investors seemed more concerned with getting their money out of the country's shaky financial institutions and putting it in safer places -- like their mattresses, fruit jars or overseas safe havens.

Under Videnov and his predecessor Lyuben Berov, Bulgaria's 16 so-called stock exchanges were largely unregulated. Confidence in those fledgling exchanges was weakened by widespread allegations of cronyism and price fixing.

Financial pyramid schemes also were traded on most of the regional exchanges. When those schemes started to collapse in 1993 and 1994, Bulgarians became even more wary about equity investments.

Andrew Kenningham, an analyst at London's Merrill Lynch brokerage, says Sofia can now benefit from an influx of capital that would come with an active equity market. But he said Kostov's government must first finance the budget deficit in a way that doesn't fuel inflation. He says the country's banking sector also must remain healthy.

Yesterday, the government announced plans to firm up the banking sector by privatizing the state's former foreign trade bank, Bulbank, through a competitive tender.

Petar Zhotev, head of the state Banking Consolidation Company, said the government will prepare plans next month for the sale. Bulbank is considered the largest Bulgarian bank. It listed assets of about $742 million at the end of last year.