The privatisation strategy which will effect the restructuring of the military equipment-producing holding company Terem has already been devised; it has been a year and a half since the Ministry of Defence took the first steps in Terem's restructuring.
The strategy was drawn up by the consultants (a consortium between KPMG-Bulgaria, the auditing firm; and Arsov, Nachev, Ganeva, a law firm); presently it is in project stage and has been submitted with the Ministry of Defence. What is peculiar about the document is that despite the fact the the consortium was commissioned to develop a plan for restructuring of Terem, finally it opted for a privatisation solution. What is more, sources close to the Ministry have said that its top officials stand behind the sale. This will be Terem’s third journey into private hands.
Buyers and Partners
The Terem Holding company is part of the so-called Embargo List which is part of the Privatisation Act. That is why its privatisation will take place by offloading stakes in the eight subsidiaries. Per each separate plant, investors will be offered between 66 pct and 77 pct, a source close to the Ministry of Defence said. The Government will remain a partner by holding 25 pct to 34 pct in the holding firm. The powers of the minority shareholder are yet to be determined by the Defence Ministry and the consulting consortium. What is clear so far is that these powers will concern the functions of the repair plants which do maintenance work for the equipment used in the armed forces. The stakes in the eight companies will be sold directly by Terem and the proceeds will remain in the holding company. The transactions will be carried out through a publicly announced tender. According to experts close to the procedure, the Ministry of Defence is expected to endorse the strategy and all the details around it are to be hammered out by the end of September. This means that the first stake sales can take place some time in early 2008. Due diligence at the eight plants has already been completed and is currently being scrutinised by the holding firm. It is actually those documents that delayed the consultants, according to sources in one of the to-be-sold subsidiaries. The reason was that Information from the separate companies was flowing one piece at a time, and the consultants needed several months to obtain permission to access classified Information about Terem. The same problem could well surface when the potential investors start seeking access to the military plants once the procedure for each plant reaches the due diligence stage.
Two Lists
The eight plants are divided into two groups: strategic, which are permanently connected to the needs of the armed forces for military repairs; and non-strategic. The first list includes four companies: Terem – Flotski Arsenal (ship repairs), Terem- Khan Krum (repairs of tanks and production of tank parts), Terem – Ivailo (repairs of assault equipment, optics, artillery systems and missile complexes), and Terem – Georgi Benkovski (aircraft repairs). The second list includes Terem - Ovech (repairs of track machines), Terem – Letetz (repairs of military helicopters), Terem – Tsar Samuil (repairs and utilisation of weaponry), and Terem – Gen. Vladimir Zaimov (radio technology).
There is interest in the majority of the companies, although it has not been formally presented. It has to do with two things: firstly, the plants also have civil production and can do repairs on all kind of equipment, not exclusively on military one; secondly, the majority of the potential investors have nothing against partnering with the Government, as this can result in serious military commissions. Thus the scheme which the consultants have engineered seems to have chances to succeed.
21-27/07/07, P43
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