Deal 5: Sofia Commerce Pawn Shops BoD Irena Vacheva on Capital Increase

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On August 9, 2022, CEE Legal Matters reported that Tokushev & Partners had advised the publicly-listed Sofia Commerce Pawn Shops on increasing its capital with its own funds in the amount of BGN 7.12 million. CEE In-House Matters spoke with Irena Vacheva, Chairman of Commerce Pawn Shops, to learn more about the matter.

CEEIHM: Tell us a bit about Sofia Commerce Pawn Shops and its operations in Bulgaria.

Vacheva: Sofia Commerce Pawn Shops is the largest chain of pawn shops in Bulgaria as well as in North Macedonia. When starting its business twenty years ago the company only had a single pawn shop. Today it operates with over 100 entities across the country, establishing itself as a leader in the non-banking financial segment in Bulgaria.

Sofia Commerce Pawn Shops is the only pawn shop company in Bulgaria that is a public joint stock company whose shares are traded on the Bulgarian Stock Exchange. Its activity consists of the provision of short-term financing cash loans, secured with a pledge of movable property, including precious metals and gems. According to Bulgarian law, the pledge holders are liable for their financial obligations to the amount of the pledged items value, which makes the business rather attractive to individuals looking for quick access to short-term financing for their personal needs.

The company’s aim is to be one of the leaders on the Bulgarian Stock Exchange, as in the last few years, its financial instruments have been a symbol of guaranteed dividend yield. We have registered subsidiaries that are granting loans – Makkom Zalozi (a non-bank financial institution in North Macedonia) and Sofcom Lizing (a non-bank financial institution in Bulgaria). This provides us with a diversified portfolio, allowing the company’s business to cover both short-term loans secured with movable property, as well as options to make larger exposures to business clients or individuals, in the form of loans secured by a mortgage or a pledge.

CEEIHM: As reported by CEELM, the company increased its capital with its own funds, why did you opt to increase the financial resources in this way?

Vacheva: One major reason was to capitalize on the profit instead of accumulating it in the company, meanwhile the company continues to have at its disposal the cash without paying out a cash dividend. Over the past eight years as a public company we have established a practice of distributing cash dividends to the shareholders, and this time it was decided to distribute a stock dividend. Having accumulated and undistributed profit from previous years in the amount of almost BGN 2.7 million, as well as the expanded volume of the company's reserve fund in the amount of over BGN 2.5 million, played a role in the decision to increase our capital. The company's current profit for 2021 in the amount of BGN 1.9 million was also used for the capital increase.

Undoubtedly, one of our aims with the capital increase was to expand the trust in the company and to enhance its reputation as a stable capital market participant in Bulgaria, which in our opinion, is confirmed by the stock market performance of the company’s shares after August 1, 2022.

CEEIHM: And what is the capital intended for?

Vacheva: From the point of view of the financial management of the company, we aim to structure the capital in an optimal way by managing our funds according to the goals we have set without taking away a valuable monetary resource from the company. As a public company, it is extremely important for us how we position ourselves on the capital market and meet the expectations of the investors. We believe that undeniable proof of how we are doing is given by the presentation of the price of our shares on the Bulgarian Stock Exchange, which has risen by over 67% in the last year. The rise in the price of the shares is supported not only by the financial results of the company but also by the expectations of profit growth in a mid-term plan.

The growth is by no means an end goal itself, but it is even more relevant at a time when the negative effects of the global crises have affected many companies. Sofia Commerce Pawn Shops has managed to keep its shares’ price stable, avoiding serious turn-downs, which reconfirms that the company is a solid market participant even in difficult times. Throughout these events, we observe a trend of the investors' orientation towards companies holding their value, the price of which is not so volatile, nor subject to external stress events - a rather logical reaction on the part of the investors.

With the capital increase, we not only show market participants in Bulgaria that we fully meet this criterion but also make known our intention to continue being an important player on the stock exchange, justifying the expectations of investors, despite the mixed scene of tendencies on the markets at the moment.

CEEIHM: What were the most complex aspects of this matter from a legal perspective?

Vacheva: The capital increase is a complex and lengthy procedure with a number of regulatory requirements in order to be conducted in a legally sound manner. In Bulgaria, only a handful of public companies increased their capital with their own funds and from this point of view, it is not an exaggeration to say that we are one of the pioneers of the Bulgarian capital market.

In this particular case, the procedure took several months of hard work, as it was back in May when we started work on convening a general meeting of shareholders to approve the increase. The newly issued shares were distributed between the shareholders in proportion to their shares of the company's capital at a certain ratio. According to Bulgarian law, shareholders who have acquired shares as of a certain date have the right to participate in the distribution of the new shares. At this stage of the procedure, it is very important to correctly settle the date by which the shareholders who have the right to participate in the capital increase are determined.

In general, our preparation for this step began in May and after having complied with numerous procedural and formal requirements before the Commercial Register, the regulator, the regulated market, and the depository of the company's financial instruments, the new shares have been traded since August 1, 2022.

CEEIHM: And why did you choose Tokushev & Partners as your advisors on this matter?

Vacheva: Tokushev & Partners has been supporting us in our business development in recent years. They have been side by side with us in all important stages of the growth of the company. During the time of our partnership, we have made sure that we can rely on them for a precise, accurate, and professional attitude in every aspect of our teamwork. And most importantly, it is always with a guaranteed successful end result. With their continuous support, from a regulatory point of view, we manage to be leaders in one rather complex business segment in Bulgaria.

In addition, as a public company, we rely on their proven long-term experience and deep knowledge in capital markets practices, thanks to which they have built a well-deserved reputation as one of the few niche specialists in this field in Bulgaria.