Omani fund files claim against Bulgaria over Corpbank

Omani fund files claim against Bulgaria over Corpbank
By Dimitar Koychev in Sofia October 27, 2015

The State General Reserve Fund of the Sultanate of Oman (SGRF) has filed an arbitration claim against Bulgaria over Corporate Commercial Bank (Corpbank), which collapsed in 2014. The Omani sovereign wealth fund, a minority shareholder in the bank, is reportedly seeking damages of over €100mn.

In 2014, when the Bulgarian Deposit Insurance Fund (BDIF) was forced to compensate guaranteed Corpbank depositors, Bulgaria racked up the fourth largest budget gap in the EU. It is not clear whether the 2016 draft budget, announced on October 26, includes provisions for payment to the Omani fund. However, the budget has already been criticized by local media and economists for being too expansionary – it reduces the deficit target, but boosts expenses to a record high.

A notice published on the website of the Washington-based International Centre for Settlement of Investment Disputes (ICSID) says that a request for the start of arbitration proceedings was registered on October 22.

The amount of the claim has not been disclosed, but according to Bulgarian daily Capital, it is around BGN200mn (€102mn). Meanwhile Reuters quotes a lawyer close to the case as saying SGRF is claiming at least €150mn.

SGRF is represented by Freshfields Bruckhaus Deringer, while the Bulgarian finance ministry has hired Arnold & Porter and Tomov & Tomov, according to the ICSID notice.

The Omani fund acquired a minority 30% stake in Corpbank for BGN185mn in 2009. The majority stake in the lender is held by the Bromak, a vehicle of controversial Bulgarian businessman Tsvetan Vassilev, who fled to Serbia after the bank’s collapse. The third biggest shareholder is sanctions-hit Russian state-owned VTB Bank with a 9.07% stake.

In June 2014 Corpbank, then the country’s fourth largest lender, suffered a bank run that deprived it of liquidity. It was put under central bank administration and an audit showed a BGN3.75bn capital hole. As a result, on November 6 the bank’s licence was revoked and it was declared insolvent on April 22.

In September 2014, SGRF proposed a bailout deal for Corpbank, according to the Bulgarian National Bank. The plan, which was not adopted, would have used mainly Bulgarian taxpayers’ money to restructure the bank. Later, SGRF also filed a complaint with a Bulgarian court, but the complaint was not considered, Capital reports.

Corpbank depositors have also filed claims against the Bulgarian state with the Strasbourg-based European Court of Human Rights, over damages caused by what they say are irregular actions by the country’s institutions.

To date, the BDIF has paid out some BGN3.66bn to guaranteed Corpbank depositors. Eurostat and the Bulgarian statistics office recently reclassified BDIF as within the general government, leading to an increase in the 2014 government budget deficit to 5.8% of GDP from the previously estimated 2.8%. Thus, Bulgaria, which has long been praised for its macroeconomic prudence had the fourth largest budget gap in the EU after Cyprus (8.9%), Portugal (7.2%), and Spain (5.9%) in 2014.

In June 2015, AlixPartners Services UK LLP, a forensic firm with international experience in investigating bank failures, was hired to trace Corpbank assets. The firm said its mandate was to recommend measures “to preserve and replenish the bankruptcy estate in the cases of assets which the bank has disposed of in breach of the law, good banking practices, and/or when the consideration is excessive in terms of what was received”.

The report has not yet been published. In September, Finance Minister Vladislav Goranov said the final report from AlixPartners would be ready by the end of the month, but would not be made public immediately.