Prokopiev & Co. sell EVN shares 25% below projected value

Ivo Prokopiev

The state’s minority stake in the EVN power distribution company was sold at a price 25% below the shares’ projected value, has been revealed by a court-ordered comprehensive accounting and economic report prepared by three different experts. It was presented in the Specialised Criminal Court as part of the case looking into the sale of a 33% stake in EVN Bulgaria Elektrorazpredelenie AD at an unfavourable price.

According to the Prosecutor’s Office, the deal defrauded the state coffers of nearly BGN 21m. The defendants in the case are oligarch Ivo Prokopiev, former ministers of finance and energy – Simoen Djankov and Traycho Traykov, respectively – and three individuals connected to Prokopiev’s company Bulbrokers – Managing Director Radoslav Rachev and shareholders Petar Vassilev and Lyubomir Evstatiev.

The case stems from a deal dating back to the end of 2011 that was conducted via the Bulgarian Stock Exchange (BSE). The first combined closed auction with a starting selling price of BGN 1,373.92 for a share was held on 21 December and sold 51,022 shares at an average final price of a little over 1,632.56. The buyer was the majority owner of EVN Bulgaria Elektrorazpredelenie AD – EVN Austria – with Bulbrokers EAD acting as the investment broker. The remaining 531 shares were sold the next day to the same buyer. In violation of the Privatisation Act, Bulbrokers was involved as fiduciary and intermediary both on behalf of the state, as represented by the Privatisation Agency, and the majority owner EVN Austria. In addition, the money from the sale went to the State Consolidation Company specifically set up for that purpose instead of the Silver Fund as it should have, resulting in damages for the Bulgarian pensioners.

Three experts have been summoned to the witness stand to explain the conclusions of the accounting and economic experts’ report ordered by the court. It estimated the value of the company and its shares using special bank and financial formulas and data provided by the appraiser Engineering Service. The experts’ report concludes that the market value of EVN as of 30 June 2011 exceeded BGN 421m, and that of a single share was over BGN 2,000.

The defendants’ team, however, did not like the experts’ conclusions and resorted to procedural tricks. And so the attorneys for Prokopiev, Djankov and Traykov requested that each of the three experts state their education, qualifications and experience as appraisers. The experts recited a long list of degrees, science degrees, titles and certificates. In response, the attorneys asked that the court order the experts to present the exact calculations they made to arrive at the aforementioned conclusions.

“The expert opinion is not well-substantiated, the calculations have not been presented for us to inspect them. Our clients maintain that they are inaccurate,” the indicted individuals’ attorneys chorused in unison. As a result, the court ordered the experts to prepare an appendix to their report detailing the formulas they used.

“I believe that the experts’ report is accurate. It uses mathematical methods. Through widely used bank and financial formulas, we come to a conclusion, using discounted cash flow (DCF) as a valuation method, i.e. projecting the money the company will generate or he losses it will incur in the future and thus estimating its value. As basis we use the data provided to us by the investigators and originally prepared by Engineering Service. We come to an expert opinion and do not place blame or make legal conclusions,” Prof. Simeon Ananiev, PhD, an expert in economy and one of the three authors of the report, told journalists later. The experts’ report will be examined in court again in early December.

On 19 March 2019 Boyka Boncheva, owner and vice-managing director of Engineering Service, testified in court that Bulbrokers interfered in the work of her company, which had been hired by Prokopiev’s people to estimate the value of the shares. Engineering Service and Bulbrokers signed a contract, but instead of the contracting authority letting the appraiser choose the method, it gave instructions as to the method that must be used. The appraiser had no contact with EVN, while the data it needed was provided via Bulbrokers, whose representatives were also the ones to defend the appraisal via the Privatisation Agency.

“It never crossed my mind that Bulbrokers might manipulate the auction at the BSE, as I later learnt from Mr Mavrodiev and the media covering the case that it did. I became concerned because the appraisal was done by our company,” Boncheva said.

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