Financing Projects in Tourism - Risks, Possibilities, Guarantees, Profits
George Prohasky - Chairman of the Management Board, Economic and Investment Bank

In recent years, the Economic and Investment Bank has financed a number of investment projects of different nature and proportions in the sphere of tourism. Being one of the most dynamically developing and competitive sectors of the Bulgarian economy, tourism was also singled out as one of the most important target sectors of the bank in its strategy for future development, whose main trends were adopted at the last General Assembly of the shareholders.

The projects in tourism financed by Economic and Investment Bank can be divided into two main groups:

* Financing of privatisation deals;

* Financing projects for the modernisation of tourist sites of different scales.

It is interesting to note that current assets loans are practically absent in the range of credits extended to tourist companies. This is explained both with the relatively low share of the current assets needed for the normal functioning of the tourist sector and with the accepted business policy and schemes for payment for the tourist services in the mass tourism resorts at the seaside and in the mountains.

The two groups of projects described above have a number of common features, but they also differ in some key parameters, which determines the need for them to be analysed and evaluated separately.

Privatisation Projects

In the past 2-3 years, the Economic and Investment Bank was consultant and financing institution for the buyers in some of the biggest privatisation deals in tourism (Golden Sands JSC, Borosport JSC), whereby the total amount of the privatisation deals consulted by the Bank exceeds USD 100,000,000 and the financing under these deals by the Bank is more than USD 13,000,000. On the basis of the experience accumulated, we assess these projects as follows:

* The special feature of these credits that the money lent by the Bank is used for paying the price for acquiring the shares, i.e., the loans do not contribute in any way to increasing the assets or to raising the ability of the respective tourist site to generate revenues and profit. It should also be pointed out that the intensified competition in the privatisation procedures, especially in the tourist sector, leads in most cases to a price that is close to the sensible maximum for a certain transaction. However, the higher price, with unchanged profitability of the site purchased, naturally diminishes the ability of the new owner to invest in the property acquired during the relatively long period of complete repayment of the loan. On the other hand, the concrete situation on the international tourist markets is influenced by many and varied factors: from the political stability and the image of the respective tourist destination, through the economic situation in the countries securing the major flows of tourists, to the overall political situation in the world, i.e., the demand, the expectations of the tourists and the price levels of the tourist services are extremely dynamic values, especially in a medium-term perspective (5-7 years), which is usually the maturity of such credits. All these factors make the privatisation projects relatively more risky than the financing of projects for the modernisation of tourist sites, which is the second major group of the Bank's investment projects. Nevertheless, the Bank's prediction of sustainable incremental development of the tourist sector in Bulgaria in a medium-term perspective was at the basis of the decision to support major privatisation deals in the sector.

* The opportunities for the Bank resulting from its participation in the financing of privatisation projects in tourism, in addition to the long-term placing of resources and the ensuring financial effects, can be outlined along the following lines:

» Securing attractive companies (tourist complexes and their majority owners) to clients of the Bank on a long-term basis. In addition to the credit used, this also includes use of the entire range of other services offered by the Bank to its corporate clients;

» A particularly valuable aspect of the privatisation deals financed by the Bank is that this involves privatisation of entire resort complexes, and not of a separate tourist site (hotel, restaurant, etc.). This guarantees access to a large influx of tourists who would be potential users of the Bank's services offered to mass customers, some of which are particularly attractive to the guests of the respective resorts. In other words, the building of good positions in the resort complexes constitutes a powerful distribution channel for the retail banking services offered. For example, the Golden Sands resort on the Black Sea is visited by about 150,000 tourists every year.

In view of the above, the financial effect (profit) for the Bank is formed not only from the interests and fees related to the loans extended for financing of the privatisation deal, but also from the revenues from the use of a number of other bank services, both by the respective tourist companies and by their guests.

* The guaranteeing of credits of this type is most frequently in the form of mortgage(s) on real estate owned by the respective tourist company, which - due to the specificities of the tourist activities (high share of the fixed assets in the overall value of the assets of the respective company) and the good liquidity of the real estate in the area of the big resort complexes - guarantees the necessary security for the Bank.

Investment Projects

In its earlier practice Economic and Investment Bank has financed projects for the modernisation (in some cases entire) or for purchasing equipment for tourist sites. During the last year the credits with such an orientation are at a total value of more than BGN 2 million for tourist sites in the Golden Sands, Borovets, the town of Rila, etc. The credits are extended for periods of one to three years, with 3 to 6 months grace period. The conditions for financing tourist sites are to a great extent similar to those for the privatisation projects. Nevertheless, there are some specificities for these projects, which need to be noted:

* Above all, the implementation of these projects leads to a direct increase of the competitiveness of the respective tourist site, which is particularly important in the highly competitive tourist sector both at regional and at local levels, as well as in the respective segment of the international tourist market. Naturally, the Bank extends this type of credits only after a careful evaluation of all aspects of the proposed business plan;

* In the general case, the projects for modernisation and/or equipping of tourist sites are considerably smaller in value than the financing of the privatisation deals in tourism. This reduces the risk of the concentration of a large volume of resources in one credit recipient.

* The existence of a larger number of smaller credit projects creates a prerequisite for a certain "standardisation" of these credits. In view of the standard security provided in such cases in the form of mortgage of real estate (buildings), it is important not to miss the opportunity of "securitisation" of such a type of credits by issuing mortgage bonds. The mortgage bonds are a good instrument for attracting long-term financial resources and equalisation of the maturity structure of the attracted financing to that of the assets in the form of long-term investment credits.

Other Services

The Economic and Investment Bank also offers a number of other services, which are interesting for and used by foreign tourists in Bulgaria and by Bulgarian tourists abroad.

International debit cards Maestro and international credit cards MasterCard

These cards are particularly interesting to Bulgarian nationals travelling abroad. The terms for the cardholders of the Economic and Investment Bank are among the best offered on the Bulgarian banking market.

Express international transfers of foreign currency through the MoneyGram system

The customers of the Economic and Investment Bank can receive and transfer sums of up to USD 9,099.99 with 100 per cent guarantee within 10-15 minutes from and to 35,000 offices of MoneyGram in 140 countries worldwide.

Sale and purchasing of American Express travellers' cheques

American Express travellers' cheques can be sold or bought in every branch of the Bank. The travellers' cheques are a payment instrument, and they have been proved to be very convenient and secure, as well as very popular, among foreign tourists visiting Bulgarian resorts.

Exchange of foreign currency

Foreign tourists can exchange currency in the Bank's branches or in special change offices in the major resorts at attractive exchange rates and guaranteed security.
Economic and Investment Bank has offices in the resorts Golden Sands, Pamporovo, Borovets, Sandanski, Bansko and elsewhere.

Tourism occupies an important place in the strategy for the development of the Economic and Investment Bank. This is connected both with the good prospects before the sector and with the fact that the Bank's specialisation in the sector leads to a more profound understanding of its problems, on the one hand, and on the other - to the offering of better banking products and better services to our client.