VTB Capital, the investment banking unit of sanctions-hit Russian financial group VTB, says it expects to close the €330mn sale of Bulgarian Telecommunications Company (BTC), the country’s largest telecom operator by revenue, early next year. Although the deal has been mired in controversy, Milen Velchev, the head of VTB Capital’s Bulgarian unit, told bne IntelliNews he doesn’t expect any problems in the completion of the sale.

VTB Capital is selling InterV, a Luxembourg-registered vehicle, which owns, through two subsidiaries, 100% of BTC, operating under the brand name Vivacom. The sale procedure was launched in late August, after InterV failed to repay a €150mn bridge loan, which was secured via a share pledge over 100% of the shares of InterV that matured in May.

InterV’s shares had previously been frozen by Luxembourg prosecutors on the request of the Bulgarian authorities, which are seeking to recover some of the billions of euros that vanished with the collapse of Corporate Commercial Bank (Corpbank) in 2014. Like BTC, Corpbank’s main shareholder was controversial Bulgarian tycoon Tsvetan Vassilev.

Adding to the confusion, an obscure Russian investor appeared on the scene in early November, claiming to have bought Vassilev's stake in InterV and vowing to fight for his “stolen” shareholding by all possible legal means.

“The shares of InterV can be transferred freely while they continue to be blocked,” Velchev told bne IntelliNews in a telephone interview on November 23, adding that the new owner will have to handle the situation.

InterV is owned by another Luxembourg-registered company, which in turn is owned by Vassilev, who has a 43.3% stake. The other shareholders are VTB Capital with a 33.3% share, and a group of creditors led by US financier Michael Tennenbaum holding the remainder.

VTB Capital is seeking to recover some €180mn – the defaulted loan plus interest and fees. The achieved premium of €150mn will be distributed proportionally among InterV’s shareholders, but only after the shares of InterV are unblocked, Velchev explained.

It is quite likely that the Bulgarian state will ask for sizeable compensation in return for lifting the injunction on InterV’s shares in line with its efforts to recover at least part of the BGN3.7bn (€1.9bn) paid to guaranteed depositors at Corpbank. Allegedly, Vassilev paid for his stake in BTC with the proceeds from a credit from Corpbank that was never returned.

€400mn bond

In addition to having to deal with the frozen InterV shares, BTC’s new owner is likely to face another challenge - a change of control at BTC could trigger an acceleration in repayment of the €400mn five-year corporate bond issued by the company in 2013. Last month, Standard & Poor’s warned that such an event “would materially weaken Vivacom's liquidity”. The company had a debt-to-equity ratio of 266% and a debt-to-assets ratio of 79.7% as of end-September.

However, Velchev underscored that while an acceleration could be triggered after the transaction is closed, prompting the new owner to have to refinance the loan, all participants in the tender were “well aware of that and had agreed to handle it appropriately”.

Who is BTC’s potential new owner?

Despite numerous media reports that the winner in the tender for BTC is local businessman Spas Roussev, who won over a consortium led by Panos Germanos, the former CEO of the Germanos retail chain and US hedge fund Third Point, after intensive bidding that lasted for more than 12 hours, VTB Capital has not confirmed the information.

Velchev declined to comment, saying that an official announcement will be made after the signing of the share purchase agreement, which is expected within days. Next, the deal will have to receive EU antitrust approval in order to be finalised. No regulatory approvals are needed by the Bulgarian authorities, Velchev said.

Local media and observers have been claiming for some time that Roussev had been selected to win the tender, and that Germanos participated only to validate the deal. They claim this allowed Roussev, allegedly sponsored by VTB Capital, to acquire BTC cheaply and resell it later at a profit that would have otherwise benefitted Bulgarian taxpayers.

Roussev is known mostly for his close relationship with Simeon Saxe-Coburg-Gotha, Bulgaria’s last king and its prime minister from 2001 to 2005, and some of his ministers, including former finance minister Velchev.

Another BTC suitor, Mark Schneider, co-founder of leading European cable group UPC, backed by US private equity fund CVC, was reportedly not admitted to the final bidding round although his initial bid was allegedly €473mn, well above the achieved final price at the tender.

Velchev declined to comment on the speculation and only said that some bids had not been admitted to the tender because they were not fully compliant. He could also not comment on whether VTB Capital is interested in keeping an equity stake in BTC after the current deal is completed.

Too many shareholders

As the puzzle unfolded, Dmitri Kosarev, a Russian businessman reportedly linked with sanctions-hit Russian billionaire Konstantin Malofeev, declared himself a majority owner of BTC, claiming he had acquired Vassilev’s 43.3% stake and also insisting that he is the rightful owner of VTB Capital’s 33.3% stake.

In a statement emailed to bne IntelliNews on November 20, Kosarev claimed he had initiated arbitration proceedings at the International Court of Arbitration of the International Chamber of Commerce in France regarding the ownership of the 33.3% stake. He added that InterV shares were blocked by Luxembourg prosecutors in relation to a probe launched on November 18 on the request of his company Empreno Ventures.

“By arranging the sale of the asset, VTB Capital is consciously and intentionally breaking the law, as it knows that 100% of Vivacom’s shares are under injunction in Luxembourg,” Kosarev said. “This is a serious blow to the image of the whole VTB Group, active outside of Russia, about which we have warned VTB’s president Andrey Kostin,” he added, arguing that VTB’s western partners would assume that it encourages the breaking of international laws.

“I believe that Mr. Kosarev’s claims have no merit,” Velchev said.

Meanwhile, BTC is performing relatively well, remaining the biggest player in the fixed-line segment and the third largest mobile operator after the local units of two much larger international telecom operators, Telekom Austria and Norway's Telenor.