The drawn-out sale of Bulgarian state tobacco firm Bulgartabak collapsed on Tuesday when the sole bidder, British American Tobacco, withdrew a 200 million euro offer for the company's three best factories. Analysts and the IMF said the failure could send a negative signal to investors, who regard the sale as a benchmark as to whether opaque political and economic interests are influencing policy in the poor Balkan state.
The move is a major setback for former King Simeon Saxe-Coburg, whose centrist government wanted to sell off the tightly-regulated tobacco sector by the end of its term this summer and before Bulgaria joins the EU in 2007.
"We have told the Bulgarian government that we are withdrawing from the transaction," BAT Press Relations Manager David Betteridge wrote in a statement to Reuters.
In October, BAT bid for Bulgartabak's plants in the capital Sofia and the central city of Plovdiv, and it later enhanced its offer to include the Blagoevgrad factory in western Bulgaria.
But last week, the ethnic Turkish Movement for Rights and Freedoms, the junior member of the ruling coalition, called for the deal to be halted, sparking a tense political stand-off in the minority government and unnerving BAT.
"In the difficult political environment, which continues to worsen, we do not believe we can complete the transaction to a timescale that will ensure that we make a worthwhile return on our investment," Betteridge wrote.
As most of Bulgaria's 10 percent ethnic Turkish population works in the tobacco industry and half of Bulgarians smoke, the sale is Bulgaria's most sensitive privatisation to date. The collapse marks the third time Bulgaria has failed to unload Bulgartabak in seven years, following two earlier attempts to sell it as a whole to industry majors and later a financial group.
The IMF's representative in Sofia, James Roaf, said the sale had been a "structural benchmark" in the Fund's discussions with Bulgaria and its failure could potentially overshadow other recent successes on the economic restructuring front.
"It's disappointing that this deal has not gone ahead," he told Reuters. "Investors are looking at these deals to have a sense of how the business climate is developing in Bulgaria, and if the deal falls through, it could send a negative signal."