Holders of USD bonds at Bulgaria's Corporate Commercial Bank (KTB) are planning to sue the government if the bond defaults and KTB is tipped into insolvency, reports Reuters.
A default has looked increasingly likely after a run on deposits at KTB in June, which prompted the central bank to seize control of Bulgaria's fourth-largest lender, shut down its operations and block depositors from taking out money.
There is still no solution in sight for a rescue of the bank, whose closure sparked the Balkan country's worst banking crisis since the 1990s, especially after lawmakers rejected a proposed rescue package earlier in July.
The maturity of the bond, which had an original issue of USD 150 M, falls on August 8.
A group of bondholders, which includes hedge funds and institutions in the United States and Europe, have formed a committee and hired legal representation in Bulgaria in the event the government tips KTB into insolvency, two sources told Reuters.
One source, a manager at a London-based hedge fund, said the government and the central bank had reassured the bondholders at a government investor road show in June that they would be protected and their money paid back in full.
Failure to do so would send a poor signal about Bulgaria's investment climate and raise the cost of the country issuing sovereign debt in the future, the manager said, speaking on condition of anonymity.
"What these guys don't realize, is that they run the risk of turning Bulgaria into the Argentina of Europe," the manager said, referring to news this week of Argentina's second default in 12 years.
"If they don't mature these bonds in a timely fashion, several bondholders are prepared to move forward with fraud and misrepresentation claims against the Bulgarian government," the manager said.
"When we met with government officials, they were telling us, don't worry, these bonds are good," the manager said.
Days after the run on KTB, the Bulgarian government and the central bank toured several European cities and were able to successfully launch a EUR 1.5 B (USD 2.01 B) bond despite the country's worsening problems.
"... a creditors' committee has been formed and represents more than the required threshold of 25% of bondholders," a second source, also in the financial sector, said. "(The) group (comprises) hedge funds and institutions in the US and Europe and is prepared to declare bonds in default and due and payable with an eye towards August 8."
The Bulgarian finance ministry was not immediately available to comment.
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Novinite PLEASE make Bulgarian journalists the talk of the world GET AN ANSWER from the Leaders of the country and the BNB ,
WHY WILL THEY NOT PAY THE the account holders and those who need their salaries to live ?
The people are only asking to have access to money that they are legally entitled to get under the LAW OF THE COUNTRY AND EUROPE. What is the problem?
What do they not want the public to know?
As long as American bondholders get paid i'm fine with it. I'm especially looking forward to seeing Brit and Irish trash lose their money forever for thinking they could get two or three more quid in BG banks because of higher interest rates.
THE FAT CATS WILL GET PAID .
Bulgaria signed up to Europe and it seems did not understand the consequences of complying with EU LEGISLATION /LAWS and the cost of not complying .
The government and every official body from the leader of government to the lowest official needs to now work within EU legislation , A building contractor,a police officer, anyone supplying a service will come under the EU and if not providing a correct and satisfactory service could find themselves PERSONALLY sued in a European court ,
Bulgaria would not be the first country to turn it,s back on an employee who made a mistake .
Your in the EU.
50% more Chinese Tourists in Bulgaria
Potentially Defective Aluminum was used by All Car Manufacturers in Japan