A Bulgarian platform is digitizing the process of selling collateral on non-performing loans, such as real estate, industrial equipment, and vehicles.
Judging by the volume of non-performing loans at banks, vehicles returned to leasing companies, and intercompany debt, distressed assets in Bulgaria amount to tens of billions of leva. With the emergence of professional debt collectors, the handling of such assets has gained momentum, and the benefits lie in unlocking cash resources. But there is room for improvement, and one step in this direction is the Bulgarian sales digitization platform Vendofin. It is the first of its kind in Eastern Europe and was created by the team at “AMS Bulgaria,” which specializes in working with distressed assets. The goal is to bring together in one place the assets that are tied up on the balance sheets of banks and financial institutions, while offering speed in sales and achieving better prices through auctions. The first auctions are scheduled for early November and will feature real estate, industrial equipment, and vehicles. The number of listings will soon increase dramatically, as Vendofin has already signed agreements with two banks to sell their distressed assets through the platform.
Auctions take place online
It took nearly two years to build the technology platform, with the founders drawing on the experience of colleagues in Germany. Their research showed that such a system speeds up the process of selling distressed assets and receivables by three to four times, while also ensuring that market prices are achieved.
Vendofin is launching with five types of assets that will be sold online: real estate, vehicles, heavy-duty vehicles, machinery and equipment, and watercraft. Subsequently, seven types of receivables will also be added to the platform—overdue and non-overdue loans to both individuals and legal entities, secured and unsecured receivables, including accounts receivable.
Only legal entities—banks and non-bank financial institutions—may sell assets and receivables, while individuals may also participate as buyers. Registration and participation in auctions are free of charge and require no deposit, and the process is entirely digital. Participants have equal access to information, with the option of a virtual data room where prospective buyers can review and evaluate the receivables or assets offered for sale. On the day of the auction, bidding also takes place online, and the parties to the transaction meet in person only when it comes time to sign the contract and have the transaction notarized.
There will be five types of auctions, selected based on the type of asset or receivable. For some, open bidding may be preferable, while for others, sealed-bid auctions may be more suitable. Sealed-bid auctions will be permitted, in which each participant may submit an unlimited number of bids, with the last bid submitted being considered valid. The highest bid wins.
Each auction will be announced with a starting price set by the seller, as well as a reserve price, which is higher than the starting price and at which a participant could acquire the asset without an auction through a so-called direct purchase. Upon a successful sale, the seller owes the platform a commission of 2.5% if the final price is up to 100,000 BGN, and 2% if it exceeds that threshold or a direct purchase is made, with a minimum of 200 BGN. Separately, Vendofin will offer consulting services if participants need advice or an appraisal, thereby further monetizing the service.
The first auctions, scheduled for early November, will feature 15 assets from the portfolio of “HypoCredit,” which “AMS Bulgaria” acquired earlier this year. Prior to that, the company purchased the remainder of Hypo Alpe Adria’s business in Bulgaria from the Austrian government. “AMS Bulgaria” was founded by former managers of the leasing company HETA, whose business collapsed during the 2008 crisis; over the course of three years, they grew it from a startup into one of the medium-sized specialized debt collection companies on the local market. In addition to Nikolay Neshev, Valentin Savov, and Ivelina Aleksandrova, other members of the company’s team—Milena Gateva, Angel Abadzhiev, and Ilian Iliev—are also joining the business for the Vendofin project. They expect the platform to become a key unit of the business group in the future. In addition to the debt collection agency, the group also includes a non-banking company—“Creditex”—whose consumer lending operations were retained following its acquisition by “AMS Bulgaria” earlier this year.
A Test for the Market
For Vendofin to become a central business unit for the group, the platform will need to succeed in attracting the major holders of distressed assets in Bulgaria. These are primarily banks, payday loan companies, and debt collection agencies. “For now, we have agreements with two banks that will offer assets and receivables through the platform. We hope to attract other banks in the local market in the coming months,” said business partner Nikolay Neshev. “We expect undervalued assets to be offered on an increasingly regular basis, as the European economy becomes increasingly indebted. We do not expect a crisis like the one in 2008, but trends point to a slowdown in growth, and the policies of the European Central Bank (ECB) and the Bulgarian National Bank (BNB) are aimed at resolving banks’ problem exposures,” added Neshev.
“What we’ve strived to do is digitize the process of selling assets and receivables. The business process has been recreated online. An advantage of the platform is that the time to sale is at least three times shorter, and there is transparency and a level playing field among participants. Furthermore, the service is completely free. We charge a success fee only when a deal is closed, and only from the seller, with a rate lower than that of real estate brokers,” says Neshev.
His colleague Ivelina Alexandrova points out that the sales of assets and receivables will take place among a professional audience. “The experience we’ve gained with the portfolios of ‘Hypo,’ ‘Heta,’ and ‘Creditex’ has led us to establish contacts with nearly 300 investors interested in purchasing undervalued assets,” said Alexandrova, listing car dealerships, companies specializing in the maintenance and trade of construction equipment, and construction firms whose business is to acquire repossessed assets, renovate them, and then resell them. This approach reassures the seller that a specific category of buyers has been informed about the auction, which promises a faster sale of the asset. This is important for distressed assets because they typically do not generate cash flow but, on the contrary, incur expenses. That is why the prices at which they are offered on the market are usually lower than market prices.
The organization of auctions will aim to achieve higher prices, closer to market levels, which will serve as an additional incentive for sellers. When asked how this process will differ from that of private enforcement agents, who also sell distressed assets, Valentin Savov commented: “First, participants do not pay a deposit. Furthermore, at private enforcement agent auctions, the asset being sold usually belongs to someone else, and in 99% of cases, the owner files an appeal after the auction. This means you can’t take possession for a long time; during that time, your deposit sits idle, and in the end, when you do the math, it may turn out that the price you paid isn’t all that much better than the market price.”
According to Savov, the platform is also convenient for buyers because they can participate in auctions no matter where they are. “If you want to participate in a private enforcement agent’s auction for an asset in Shumen, for example, you have to go there to leave your deposit and submit your bids in person. The online platform, however, allows you to participate in the auction from wherever is convenient for you. Of course, you’ll have to come in person to sign the contract,” Savov added.
Following the pilot auctions in November, the platform will continue to evolve, with plans to introduce the option of providing loans to auction participants. The true test of its success will be the number of partners attracted and the volume of assets offered at the auctions. Currently, each bank lists properties seized as collateral for defaulted loans on its own website, while portfolios of non-performing loans are sold through closed-door auctions to which only a limited number of bidders are invited. Similarly, interested buyers monitor the websites of leasing companies. Even if all this information were simply gathered in one place—thereby making the auctions more transparent—the market would be able to take a step forward.
Additional information can be found here: https://www.capital.bg/biznes/kompanii/
