Nadia Damon in Sofia -

Ask any analyst to summarise the performance of the Bulgarian Stock Exchange (BSE) in 2007 and they're certain to begin with IPOs - and with good reason.

Recent research from Karoll Capital Management claims that Bulgaria now ranks only behind Poland and Russia in terms of IPOs so far this year, after doubling its 2006 IPO tally and the amount of revenue raised (well almost, the latter figure actually boasts a 97% increase).

Following Bulgaria's accession to the EU in January, 12 IPOs have been carried out on the BSE, raising a total of €191m between them. And that figure should increase further by the end of the year.

In the pre-EU accession months of 2006, IPO-fever hit the BSE with the impressive debut of holding company Chimimport in October. The flow of IPOs continued into the New Year, with the January 3 float of car-battery producer Monbat. That was followed in the spring by First Investment Bank, non-metallic mineral mining company Kaolin and Corporate Commercial Bank.

The IT sector has been represented by Bianor and Specialized Business Sytems, both of which appeared on the exchange in September. The Devin mineral water company also began trading that month.

The IPO of supermarket chain CBA Asset Management, which took place in November, was twice over-subscribed, but this figure was soon trounced by road construction firm Trace Hold Group which broke all BSE records by being over-subscribed more than 1,480 times. Trace's IPO proved a pivotal moment, prompting the Financial Supervision Commission to update its regulations. The new rules stipulate that in future, investors will only be allowed to submit bids to the value of their bank deposits, or equity and mutual fund holdings.

The Trace ruling did nothing to diminish investors' enthusiasm, however. December will see a flurry of activity before the year-end. Hidroizomat, Enemona (energetics and services), media firm Billboard AD and Zarneni Hrani, the large new holding that united the grain business of Chimimport and furniture manufacturer Darvoobrabotvane BT, are all set to IPO this month, with another four - Agria Group Holding, Herti, Astera, and Investbank - set to do so at the beginning of 2008.

Riding on the wave of interest in this sector, Karoll Capital Management launched an Advance IPO Fund in November - a collective scheme that focuses on IPO investments in Central and Eastern Europe. The fund initially plans to invest in companies based in Bulgaria - and has already submitted its order for shares in Enemona - although it plans to branch out into other CEE countries like Romania, Serbia, Russia, Ukraine, Poland and Hungary.

Room for expansion

IPO activity aside, Bulgaria's stock exchange has been carefully cementing its place in the EU community. Having declared that it was in serious talks with a number of potential technical partners, the BSE opted for Deutsche Boerse over Nordic exchanges operator OMX at the end of October.

In an interview with bne, BSE founder and chairman of the board of directors, Victor Papazov, was suitably upbeat about the move - which should see the Xetra trading system operating on the bourse by mid-2008. "I am certain that the Deutsche Boerse will help develop the Bulgarian market develop in a number of ways," he says. "Of course implementation of the Xetra trading platform will be the main factor in making the Bulgarian market much more attractive and easily accessible, but the marketing power of the Deutsch Boerse is also very important."

Papazov says that by adopting Xetra, the Bulgarian market will start operating in accordance with accepted EU standards. All the brokers in Europe are familiar with Xetra, so it should be easy for them to access the Bulgarian market if they wish to do so. "In short, if Xetra is good for the substantial part of Europe, it will be good for the local Bulgarian market for sure," Papazov said.

Many experts believe the adoption of a strategic partner will lead to the successful candidate eventually getting the nod to acquire the government's 44% share of the exchange, which remains the subject of much speculation. Hellenic Exchanges, the Warsaw Stock Exchange, OMX, Borsa Italiana are all said to be keen on acquiring the stake, though Papazov insists there have been no new developments in this area.

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