“The main topic of all discussions in Bulgaria now is of course the COVID-19 crisis,“ says Diana Dimova, Managing Partner of Kinstellar’s Sofia office. “The good news is that the epidemic situation is under control with some 700 active cases, largely due to decisive measures taken early.“
Dimova reports that a state of emergency was declared in Bulgaria when the country registered only 16 cases. As a result of that declaration, she says, “public gatherings are limited and most public venues are closed, except for grocery stores, banks, pharmacies, and insurance offices. Intercity travel to and from Sofia is prohibited without proper reasons,” she says. “We’re cut off from the rest of the country at the moment.“
Of course, the government is trying to ease the resulting damage to the Bulgarian economy. According to Dimova, “one of the measures it has offered is a stimulus package that will reimburse employers for 60% of employee salaries and social security contributions, with the employers covering the rest.“
Also, she says, “the capital of the Bulgarian Development Bank will be increased by BGN 500 million (approximately EUR 255 million) to be used for portfolio guarantees to commercial banks on investment loans and working capital loans to SMEs affected by the coronavirus outbreak. In addition, the Fund Manager of Financial Instruments in Bulgaria EAD [the entity managing financial instruments co-financed by the European Structural and Investment Funds] will provide guarantees totaling BGN 170 million (approximately EUR 87 million) to third party lenders that will back up a fresh loan portfolio of up to BGN 850 million (approximately EUR 435 million).” Companies would be able to benefit from long-term loans of up to ten years mainly for working capital needs.
Still, she says, many believe this is not enough, and she reports “a push to expand the stimulus package even further."
The Bulgarian Development Bank, however, which is tasked with implementing some of these measures, is itself embroiled in scandal, Dimova reports. “The bank recently approved a multimillion euro loan to a debt collection agency that acquired NPL portfolios from two still publicly unnamed banks. This provoked public outrage and led to a removal of the current management of the bank – it was simply unacceptable to support this type of business undertaking during this crisis.“
Dimova reports that the Bulgarian parliament approved an increase of the public debt ceiling, "so we may soon see the government issuing more bonds in an effort to raise financing to battle the crisis.“ Also, she says, Bulgaria's National Bank approved a private moratorium on credit facility payments for a period of up to six months. According to her, “unlike the 2008/2009 crisis, the banking sector comes into this situation strong and should be able to withstand the pressure.“
Not everybody is suffering, Dimova reports. “Not all sectors of business have suffered a huge hit,” she says, reporting that "certain IT companies providing support, data center services, e-commerce, and food distribution companies all see increased demand for their services.“
Finally, Dimova reports, “the court system is going through a dramatic change right now, with testing currently underway to discern if court hearings can be held remotely.” She says that Bulgaria's legal profession is adapting to the “new normal“ as well. According to her, law firm M&A practices are “taking an expected hit, with many transactions stopping midway since valuations of targets, for example, may no longer be valid. Even the sectors which were strong, like energy, are experiencing a slowdown, due to expectations that banks may not be financing projects at a pace they did before the crisis.“ She believes that “a spike in restructurings is bound to happen, but not immediately due to all the measures implemented,” and reports that “we are, however, seeing strong activity in the employment and commercial lease practice areas.“