The recent history of Bulgarian Telecommunications Company (BTC) is a textbook case of leveraged buy-outs gone wrong. Since its privatisation in 2004, the former state fixed-line monopoly has had three more ownership changes, amassing about 1.65 billion euro in debt.

BTC, which operates under the Vivacom brand, is now looking for yet another new owner to turn its fortunes around. Reports in Bulgarian media have claimed in recent weeks that the company has drawn interest from four potential bidders, with Morgan Stanley advising the sale.

The suitors
Preliminary bids were due in November, but BTC has kept quiet so far on the issue. Reports in Bulgarian media have identified the interested parties as two telecom operators – both from Turkey – and two financial investors.

Turkish rivals Turk Telekom, owned by Oger Telecom, and Turkcell are both said to be assessing BTC, four years after making unsuccessful bids for the company.

Turkcell was exploring expansion opportunities on the Balkans and was interested in BTC, but only if the price was right, Bulgarian weekly Capital quoted the company's head of investor relations, Nihat Narin, as saying. Until now, Turkcell has focused mainly on former Soviet republics, where it owns subsidiaries in Ukraine, Moldova, Belarus, Azerbaijan, Kazakhstan and Georgia.

Oger Telecom, based in Dubai but majority owned by Saudi Telecom (itself owned by Lebanon's Hariri family) has a long history of chasing BTC, failing twice on previous attempts (in 2004 and 2007).

The investment vehicle of former economy minister Nikolai Vassilev, who closed BTC's privatisation as transport minister in 2004, is one of two financial investors to have put in a bid. Vassilev has said that his company, Expat Capital, was in the running on its own, not as a representative for other parties.

Expat Capital's assets under management were worth 50 million euro in October. The company would need at least double that to make a credible bid and the funds were likely to come from Expat shareholder Atanas Tilev (the former owner of the Agricultural Credit Bank, one of the many that went bankrupt in Bulgaria's banking crisis in the mid-1990s), according to Capital weekly.

The identity of the last prospective bidder was enveloped in mystery, with mass-circulation daily Trud identifying it as a London-based vehicle for Tsvetan Vassilev, chairperson and owner of Corporate Commercial Bank.

Vassilev is a controversial figure in Bulgaria because his bank holds the bulk of state companies' deposits, money that has been used to fuel a spree of acquisitions – by companies that are seen as controlled or linked to Vassilev – in several sectors, including the media. According to Trud, Vassilev has partnered with the equally controversial owners of wine and spirits maker Vinprom Peshtera (often accused in the media, but never formally prosecuted, of tax evasion) and former finance minister Milen Velchev, the architect of bond swops in 2002/03 that cost Bulgarian taxpayers about one billion leva.

Velchev declined to comment on the speculation, Capital weekly reported.

Blast from the past
The state sold BTC, then considered the crown jewel of state properties, in 2004 to Viva Ventures, a vehicle for US-based fund Advent International, which paid 230 million euro for a 65 per cent stake. Initially, the preferred buyer was Oger Telecom in consortium with Turkey's Koc Holding, only for Viva Ventures to emerge as the winner following a court challenge.

The price was seen as very low from the start, considering that BTC's real estate alone was estimated to be worth in excess of 200 million euro, but criticism grew only louder when the sale of the state's remaining stake fetched 320 million leva on the Bulgarian Stock Exchange.

Just a year later, Icelandic billionaire Thor Bjorgolfsson, a prolific equity investor in Bulgaria in the middle of the decade, effectively gained control of BTC by agreeing to buy-out Advent's stake for 620 million euro.

In 2007, he sold his stake, which he took to 90 per cent by buying traded stock, to US insurer AIG's asset management arm (picking it ahead of Oger Telecom once more), for a total 2.1 billion leva.

Each ownership change was heavily-leveraged, with AIG's investment unit piling most of the acquisition cost onto BTC – 1.3 billion euro in senior and subordinated debt, as well as a further 325 million euro owed to mezzanine lenders.

After AIG's bankruptcy in 2008, its asset management subsidiary was sold to Hong Kong billionaire Richard Li and renamed PineBridge, but the breach of bond covenants in 2010 has kick-started a long process of restructuring talks, which culminated in Morgan Stanley's hiring to advise on the sale of BTC.

Muddied mess
It remains to be seen how big of a loss BTC's creditors will have to take on their loans; mezzanine lenders, which include hedge fund Tennenbaum Capital Partners and Royal Bank of Scotland, could lose all their money.

In October 2010, Oger Telecom offered to pay 125 million euro for a minority stake in BTC, in exchange for control of operations with minimum interference from creditors. Under the terms of that proposal, its stake would increase over time, as BTC's debts were being paid off.

A similar deal was being prepared this time around as well, Capital said, with PineBridge unlikely to receive anything for its stake. According to the weekly, a preferred buyer could be picked by spring, allowing for the deal to be closed by mid-2012.

By that point, the chosen buyer will likely know the outcome of three separate lawsuits brought by the Bulgarian state (which is claiming a total 100 million euro in damages), and could adjust its plans accordingly, the newspaper said.