Belgium's second largest banking and insurance group KBC has finally entered the Bulgarian banking market with the purchase of a majority stake in Bulgaria's ninth largest lender by assets, Economic and Investment Bank (EIBank). Despite paying 373 million leva for a 75 per cent stake, in what is the most expensive takeover in Bulgaria's banking market ever, it now has all the preconditions it needs to replicate its smooth-running banking-insurance model in the country.
KBC’s entry into the Bulgarian banking market comes after a seven-year delay and at its fourth attempt. In early 2000, KBC's bid for Bulbank was turned down in favour of UniCredit. In 2003, OTP Bank of Hungary was chosen in the race for DSK Bank and last year it lost to Greece's EFG Eurobank in a tender for DZI Bank.
Despite the obstacles, KBC is now a player in the local banking market – Belgium's first bank in Bulgaria, and its plans are nothing short of ambitious. On signing the deal September 28, KBC representatives said the Belgian group would use the network of DZI Insurance and EIBank to offer a mix of banking and insurance products and would naturally be looking for synergies between the businesses.
“[The] acquisition provides KBC with an ideal opportunity to start developing its bankassurance model and to become the premier bankassurer in the high-growth Bulgarian market,” KBC Group CEO Andre Bergen said in a press release.
In addition to its existing network, the group plans to expand its Bulgarian network by 28 branches and as many outlets by the end of 2010.
Jan Vanhevel, CEO of KBC's Central and Eastern European and Russian operations, went one step further, “By forming a partnership, DZI Insurance and EIBank can become part of what potentially will be the largest diversified group in the financial services industry in Bulgaria with an unrivalled distribution network across the country.”
Making the KBC model work also includes taking the Bulgarian assets private. The bank is set to execute a shareholder squeeze-out procedure for 2.7 per cent of the bank's shares and then delist it from the Bulgarian Stock Exchange. The move is consistent with KBC's strategy to have no entity but the parent company quoted on a stock market. The mandatory takeover procedure of remaining shares of DZI Insurance is already in process.
This procedure is due to start once the transaction is approved by Bulgaria's central bank, the Financial Supervision Commission and the Commission for the Protection of Competition. KBC expects the deal to be completed before the end of the year.
Once the procedures are completed, the Belgian group is set to challenge the supremacy of UniCredit as leader in the banking market, KBC officials said. Despite the seven-year delay, KBC officials believe its two purchases over the past year will help it capitalise on the Bulgarian market, which still has much room for growth. KBC officials have based its optimistic estimates on the fact that wealth levels of Bulgarians have yet to pick up. “The penetration ratio of banking products and services still offers scope for additional catch-up growth in the next few years and the SME [small and medium enterprise] market is also still in an early stage of development,” the KBC press release said.
The takeovers in Bulgaria are part of KBC's broad-reaching offensive in Central and Eastern Europe. In the past couple of years alone, the bank's mergers and acquisition budget for the region has been estimated in the billions of euro.
Undoubtedly, the EIBank transaction is a win-win situation for all parties involved. Icelandic billionaire Thor Bjorgolfsson - through investment fund Novator, made his second divestiture this year at a price multiple of takeover costs. Novator had bought a 48.6 per cent stake in EIBank for 189 million leva. Earlier this year, Bjorgolfsson sold his majority stake in Bulgaria's former landline monopoly BTC for a price in excess of 1 billion leva after buying it at 560 million leva.
The deal on September 28 reduced Novator-Bjorgolfsson's asset portfolio in Bulgaria to the three factories of generic drugs giant Actavis.
In addition, business person Svetoslav Bojilov will get 187 million leva for his 24.3 per cent shareholding. Tsvetelina Borislavova will remain the owner of 22.3 per cent of the EIBank’s capital and will cash in 15 million leva for the divestiture of a 2 per cent shareholding. The fact that Borislavova will continue to feature in EIBank’s shareholding structure is good news for Bulgaria too as the financial institution will be among the few big players with a local partner.
