All the questions
Bulgarian financial markets are dominated by bank loans. Despite the war in Ukraine since February 2022, the covid-19 pandemic since 2020 and recent inflation (all of which have had direct or indirect negative impacts on the Bulgarian economy), Bulgarian banks remain highly liquid (class d (key assets held by the Bulgarian population being bank deposits), which makes bank loans readily available and easily preferred by entrepreneurs.
Nevertheless, Bulgarian capital markets and Bulgarian issuers have slowly but surely become more sophisticated. Debt issuance is more visible, with at least a few large international transactions each year.
Equity capital markets, which are the main focus of this chapter, are smaller, distinctly local and yet the most capable of a significant leap in the number of issues and the quality of issuers, particularly in the case of start-ups and small and medium-sized enterprises. medium-sized enterprises (SMEs). Many large issuers are also present on the Bulgarian capital markets, and some of them have also carried out a double listing, in particular on the Warsaw Stock Exchange. However, no recent double listings have taken place and listings of Bulgarian issuers on global stock exchanges, such as the London Stock Exchange (LSE) or the New York Stock Exchange (NYSE), have not yet been observed.
Despite its size, the Bulgarian IPO market and capital markets in general remain a popular asset class for many institutional and retail investors. This is partly due to the very favorable Bulgarian tax treatment of capital gains (i.e. no taxation incurred on stock exchanges, which are regulated markets, and on SME growth markets (such as BEAM, as shown below)). In the case of SME Growth Markets, the capital gains tax exemption expires at the end of 2025.
i Main stock exchanges
There is one stock exchange in Bulgaria, which operates markets that qualify as regulated markets for the purposes of European Union rules: the Bulgarian Stock Exchange (BSE). It traces its history to the beginning of the 20th century. After the communist era in Bulgaria, BSE was re-established in its present form in the 1990s. Today it is majority-owned by the Bulgarian state.
The BSE has itself been a listed issuer of shares since early 2011. In addition to organizing the only regulated market in Bulgaria, the BSE provides a range of other services and organizes other markets, including the Growth Market BEAM (see below). Since 2018, the ESB has owned the operator of the main Bulgarian energy market, the Independent Bulgarian Energy Exchange.
The BSE primarily attracts domestic issuers, but as a founder and member of SEE Link, a project sponsored by the European Bank for Reconstruction and Development (EBRD) to create a regional infrastructure for trading securities listed on other local stock exchanges, the BSE effectively allows Bulgarian investors easy access to stock exchanges in Greece (Athex), North Macedonia (Macedonian Stock Exchange), Bosnia and Herzegovina (SASE and Banja Luka), Croatia (Zagreb Stock Exchange ), Slovenia (Ljubljana Stock Exchange) and Serbia (Belgrade Stock Exchange), and vice versa.
ii Overview of Registration Requirements
The BSE operates several markets and segments: the main market, which is a regulated market for the purposes of MiFID II; the BaSE Alternative Market segment, which hosts illiquid issues; and the new growth market BEAM. BEAM is not a regulated market. In addition, the BSE operates a Multilateral Trading Facility (MTF) called BSE International, aimed at giving the local investor base access to selected blue-chip European companies.
The main market includes premium equity segment, standard equity segment, bond segment, government securities segment, and exchange-traded products segment, among others.
Given the relatively small size of the Bulgarian equity markets, BSE listing requirements, even for the main market, are not burdensome for issuers. For example, the Premium and Standard equity markets impose the following eligibility conditions on issuers:
- at least five years of business history of the issuer;
- at least one year of prior listing on the standard equity segment;
- free floating of 25 percent of the issue, or total value, of shares held by minority shareholders of at least 5 million lev;
- average monthly turnover (six months retrospectively) of 300,000 lev or more;
- average monthly transactions over the previous six months of 150 or more;
- the issuer must comply, in Bulgarian and English, with its continuous disclosure obligations over the past 12 months;
- an accounting profit to be realized at least two years in each preceding five-year period; and
- the issuer must comply with the National Code of Corporate Governance.
Some of the above registration requirements may be waived by the BSE upon registration or thereafter.
The Standard Equities segment hosts issues that do not meet the requirements of the Premium Equities segment, but must still meet an average monthly turnover requirement (for previous six-month periods) of 4,000 lev or more; meet an average monthly trade requirement (per previous six-month periods) of at least five trades in the respective issue; and meet the requirement of compliance with the communication of regulated information.
Issuers subject to insolvency or liquidation are not eligible to maintain listing on any of the BSE’s main market segments.
iii Overview of laws and regulations
The main pieces of legislation governing the IPO process in Bulgaria are Regulation (EU) 2017/1129 (the Prospectus Regulation) and the Public Offers of Securities Act (POSA).
While the Prospectus Regulation establishes rules for the preparation and approval of a prospectus in the context of a public offer and the listing of securities on a regulated market in Bulgaria (such as the main market of BSE ), the POSA covers a much broader range of topics, including certain offering and listing documentation requirements to be prepared by issuers seeking relief from the prospectus preparation and approval requirements in under the Prospectus Regulation. This concerns in particular legal and financial information in the event of a small public offer (ie up to 8 million euros over a period of 12 months) and the listing of securities on an MTF.
In addition, POSA provides various national rules governing post-IPO obligations of an issuer of shares. These include, in particular:
- the rules relating to the publication of periodic financial information and major holdings, transposing the Transparency Directive 2004/109/EC;
- rules relating to the preparation and submission of takeover bids, transposing the Takeover Directive 2004/25/EC; and
- special corporate governance rules for issuers whose shares have been registered in a respective register maintained by the supervisory and regulatory authority, the Financial Supervisory Commission (FSC), and have been admitted to trading on a regulated market, which broadly follow but go beyond the minimum standards set by Directive (EU) 2017/828 on shareholders’ rights (for example, in relation to the POSA rules on the invalidity of certain transactions entered into by a company listed without the prior authorization of the shareholders).
Regulation (EU) No 596/2014 (the Market Abuse Regulation (MAR)) and the law on the implementation of measures against market abuse by means of financial instruments provide for further post- IPO, aimed at ensuring, among other things, the timely disclosure of inside information and director transactions, as well as the prevention of insider trading and market manipulation.
Finally, the above rules are complemented by various EU implementing and delegated acts (e.g. Delegated Regulation (EU) 2019/980, which contains templates for different information under the Prospectus Regulation), as well only by orders issued by the FSC (for example, FSC Order No. 2, which supplements the disclosure requirements under POSA).