Minimising the risks from a new investment in Bulgaria
When our client was on the verge of acquiring a significant government-held minority interest in a Bulgarian bank, we were asked to examine the individuals on the bank’s executive board and its main shareholders.
In the course of our investigation, we determined that the chairman of the board had maintained a close relationship over many years with the chief executive of one of the shareholders, a Bulgarian steel producer. In fact, in the mid 1990s, they had jointly participated in the privatisation of a Bulgarian bank.
This bank had subsequently made a series of loans which were not repaid, leading the bank to default. It was widely (and justifiably) alleged that the bad loans had been to related parties. As a result of our investigation, our client concluded that it could not accept that the steel company should remain as a shareholder in the bank, although it could accept the continuing incumbency of the chief executive subject to further strengthening of the management team. Since our client’s equity investment in the bank was to be accompanied by a badly needed loan package, it was able to rally political support as well as support within the institution itself. As a result, our client not only acquired the government stake but also that of the steel company.