Bulgaria's financial markets are dominated by bank lending. Despite the war in Ukraine since February 2022, the covid-19 pandemic since 2020 and recent inflation (which have all had direct or indirect negative impacts on Bulgaria's economy), Bulgaria's banks remain very liquid (with the key asset class held by Bulgaria's population being bank deposits), which makes loans by banks readily available and readily preferred by entrepreneurs.
Nevertheless, Bulgaria's capital markets, and Bulgaria's issuers, have been growing in sophistication – slowly but steadily. Debt issuance is more visible, with at least a few sizable international transactions every year.
Equity capital markets, which are the primary focus of this chapter, are smaller, markedly local and yet are the most capable of a significant leap in the number of issues and the quality of issuers, especially in the case of start-ups and small and medium-sized enterprises (SMEs). Many large issuers are also present in Bulgaria's capital markets, and some of them have also effected dual listings, on the Warsaw Stock Exchange in particular. No recent dual listings have occurred though, and listings of Bulgarian issuers on global exchanges, such as the London Stock Exchange (LSE) or New York Stock Exchange (NYSE), are yet to be observed.
Despite their size, Bulgaria's IPO market and capital markets in general remain a cherished asset class for many institutional and retail investors. This is not least owing to the very favourable Bulgarian tax treatment of capital gains (i.e., no taxation realised on stock exchanges, which are regulated markets, and on SME growth markets (such as BEAM, as discussed below)). In the case of SME growth markets, the exemption from capital gains taxation expires at the end of 2025.
Governing rules
i Main stock exchanges
There is one stock exchange in Bulgaria, which operates markets that qualify as regulated markets for the purposes of European Union rules: the Bulgarian Stock Exchange (BSE). It traces its history to the early 20th century. After the communist era in Bulgaria, the BSE was re-established in its current form in the 1990s. Now, it is majority-owned by the state of Bulgaria.
The BSE has itself been a listed issuer of equities since early 2011. In addition to organising Bulgaria's only regulated market, the BSE provides a range of other services and organises other markets, including the growth market BEAM (see below). Since 2018, the BSE has been the owner of the operator of Bulgaria's major energy market, the Independent Bulgarian Energy Exchange.
The BSE attracts primarily domestic issuers, but as a founder and member of SEE Link, a European Bank for Reconstruction and Development (EBRD)-sponsored project to create regional infrastructure for trading in listed securities on other local exchanges, the BSE effectively makes it possible for Bulgarian investors to reach out easily to stock exchanges in Greece (Athex), North Macedonia (Macedonian Stock Exchange), Bosna and Herzegovina (SASE and Banja Luka), Croatia (Zagreb Stock Exchange), Slovenia (Ljubljana Stock Exchange) and Serbia (Belgrade Stock Exchange), and vice versa.
ii Overview of listing requirements
The BSE operates several markets and segments: the Main Market, which is a regulated market for MiFID II purposes; the BaSE Alternative Market Segment, which hosts illiquid issues; and the newer growth market BEAM. BEAM is not a regulated market. In addition, the BSE operates a multilateral trading facility (MTF) called BSE International, aiming to give the local investor base access to selected first-class companies from Europe.
The Main Market comprises the Premium Equities Segment, the Standard Equities Segment, the Bonds Segment, the Government Securities Segment and the Exchange Traded Products Segment, among others.
Given the relatively small size of Bulgaria's equity capital markets, the listing requirements of the BSE, even for the Main Market, are not demanding on issuers. By way of example, the Premium and Standard Equity Markets impose the following eligibility requirements on issuers:
Some of the above listing requirements may be waived by the BSE upon listing or thereafter.
The Standard Equities Segment hosts issues that do not meet the requirements for the Premium Equities Segment, but are still required to meet an average monthly turnover requirement (per the preceding six-month periods) of 4,000 lev or more; meet an average monthly trades requirement (per preceding six-month periods) of at least five trades in the respective issue; and meet the requirement for compliance with the disclosure of regulated information.
Issuers undergoing insolvency or liquidation proceedings are not eligible for continued listing on any of the BSE Main Market segments.
iii Overview of law and regulations
The main legislative texts governing the IPO process in Bulgaria are Regulation (EU) 2017/1129 (the Prospectus Regulation) and the Public Offering of Securities Act (POSA).
While the Prospectus Regulation lays down rules for the preparation and approval of a prospectus in the context of public offering and listing of securities on a regulated market in Bulgaria (such as the BSE's Main Market), POSA covers a much broader array of topics, including certain requirements towards the offering and listing documentation to be prepared by issuers wishing to use an exemption from the prospectus preparation and approval requirements under the Prospectus Regulation. This concerns, in particular, legal and financial disclosures in the case of small size public offerings (i.e., up to €8 million within a 12-month period) and the listing of securities on an MTF.
In addition, POSA provides for various national rules governing the post-IPO obligations of an equity issuer. These include, most notably:
Regulation (EU) No. 596/2014 (the Market Abuse Regulation (MAR)) and the Implementation of the Measures against Market Abuse with Financial Instruments Act provide for further post-IPO requirements, aimed at ensuring, among other things, the timely disclosure of inside information and directors' dealings, and the prevention of insider offences and market manipulation.
Finally, the above rules are supplemented by various EU implementing and delegated acts (e.g., the Delegated Regulation (EU) 2019/980, which contains templates for different disclosures under the Prospectus Regulation), as well as ordinances issued by the FSC (e.g., Ordinance No. 2 of the FSC, which supplements the disclosure requirements under POSA).
