June 27, 2014 / 3:05 PM / 3 years ago

Bulgaria's Corpbank sees dollar bond plunge after run on bank

LONDON, June 27 (Reuters) - A dollar bond issued by Bulgaria’s Corporate Commercial Bank has fallen sharply to trade on Friday around 77 cents on the dollar, amid concern the troubled institution may not repay the debt when it matures on August 8.

Bulgaria’s central bank has warned of an attack on the banking system as a run on Corporate Commercial Bank, or Corpbank, spread to other institutions and fuelled a plunge in share prices.

The Corpbank bond began the week trading almost at par, meaning it has fallen nearly 25 cents..

Corpbank, 30 percent owned by Oman’s sovereign wealth fund and 10 percent by the Russian bank VTB, issued the $150 million bond through a special vehicle called Northern Lights in a deal that was managed by VTB Capital in 2012.

The government has stepped in to rescue Corpbank and may end up nationalising it if shareholders fail to stump up funds.

“There is some precautionary selling,” said Richard Segal, an analyst at Jefferies.

Other Bulgarian banks are also starting to see withdrawals. Shares in third-biggest lender First Investment Bank tumbled 24 percent on Friday.

Reflecting the risks, Bulgarian credit default swaps have also been on the rise, trading this week at a 15-month high of 128 basis points, according to Markit.

The banking panic potentially carries risks for Bulgaria’s currency board, which pegs the lev to the euro at 1.95583 . But analysts note that central bank reserves are three times the size of the monetary base.

“The currency board depends on the confidence of depositors, but their monetary base is way more than fully covered by reserves, so I don’t see a situation where this is endangered,” said Simon Quijano-Evans, head of emerging markets research at Commerzbank (Reporting by Sujata Rao and Carolyn Cohn; Editing by Larry King)

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