* Minister sees up to 3.4 bln levs in new debt
* Sees rescue of Corpbank costing 1.5-2 bln levs
* Says working on way to support Corpbank bondholders
* Still no consensus on Corpbank rescue: finance minister
* Parliament supports law to punish offenders in bank run
(Adds quote, details, background)
By Tsvetelia Tsolova
SOFIA, July 16 Bulgaria could raise up to 3.4
billion levs ($2.4 billion) of new debt, partly to help finance
a bank rescue, piling pressure on a budget deficit that is
expected to widen to 2.7 percent of economic output, the finance
Some 2.7 billion levs of the new debt could go towards
rescuing Corporate Commercial Bank (Corpbank),
Bulgaria's fourth largest lender, which has shut since June 20.
The dollar bond of Corpbank was marked to record lows of
around 45-50 cents in the dollar on Wednesday, traders said, on
fears no rescue plan for the bank will be approved before
parliament dissolves in early August.
Finance Minister Petar Chobanov said on Wednesday Bulgaria
was considering a solution to help the bondholders, but his
government has struggled to reach a consensus with political
parties on the terms of the rescue of Corpbank, which requires a
special law to be passed in parliament.
The bond, which matures on Aug 8, traded at par as recently
as mid-June. But analysts were pessimistic a deal can be reached
in time because parliament is due to dissolve on Aug 6 before
Bulgaria is one of Europe's least indebted states and this
year's budget deficit target was 1.8 percent of GDP.
But its outgoing government is grappling with the fallout
from runs on two major lenders in June that forced Sofia to free
up an emergency credit line to support its banks, as well as
with a revenue shortfall.
The new debt could be raised both on domestic and
international markets by the next governments, Chobanov told
reporters at a press conference, estimating the rescue cost for
Corpbank from public funds at about 1.5-2 billion levs.
The Socialist party-led administration, which has been in
power for just over a year, is due to step down next week
following a poor performance at the European Parliament
elections in May, paving the way for a snap election in October.
"We are proposing to strengthen fiscal buffers to allow for a
flexibility in the current political situation and increase
trust in financial stability," Chobanov said.
Bulgaria faces a revenue shortfall of 500 million levs on
lower-than-expected income from tax and excise duties, Chobanov
said, adding the state needed to pump 225 million levs into
services that fund hospitals and subsidise medicines.
The government's proposed changes in raising debt and for
the fiscal deficit have been sent to parliament, which is
expected to debate them on Thursday.
Depositors unnerved by reports of shady deals involving the
main owner of Corpbank withdrew more than a fifth of deposits
during a week-long run, forcing the central bank to seize
control of the lender for three months and shut it down.
The main shareholder has repeatedly denied any wrongdoing.
The government plans to transfer the bank's healthy
activities to a recently acquired subsidiary, which would reopen
as a nationalised institution under a proposed rescue package
that needs the approval of parliament in a special law.
But Prime Minister Plamen Oresharski is still wrangling with
Bulgaria's main political parties on the terms of such a rescue,
especially to what extent depositors will be protected, which is
almost certain to delay the planned reopening of the subsidiary
The wrangling has also thrown into doubt what will happen to
the bondholders at Corpbank, and Chobanov said on Wednesday the
government was working out a solution on how to support them.
"Better to have these words than not, but how will he get
everyone else to listen?" said Richard Segal, an analyst at
Jefferies in London, of Chobanov's comments.
Chobanov had told Reuters earlier in July that the holders
of a dollar bond issued by Corpbank would be protected and not
required to contribute to the rescue.
"We are thinking about a solution to support the
bondholders," Chobanov said on Wednesday. "The cost compared to
the risk indicates that in the special law for the bank the
bondholders should be supported."
Chobanov said that the task of raising new debt would fall
to an interim government, which is due to take charge on Aug. 6
for two months before the next election.
"Words of support from the finance minister have been
encouraging ... but it is not clear there will be sufficient
time to resolve the issue before the bond matures on Aug. 8,"
said Segal. "It may prove low priority, with the government
scheduled to close for early elections a couple days earlier."
The run on Corpbank was followed a week later by a run on
another lender, which the government subsequently blamed on a
deliberate attack to tear down Bulgaria's financial system by
people spreading false rumours about the health of banks.
On Wednesday parliament signalled its support for a law that
could mean up to 10 years in prison for serious offences of this
($1 = 1.4452 Bulgarian Levs)
(Additional reporting by Angel Krasimirov in Sofia and Sujata
Rao in London; Writing by Matthias Williams; Editing by Ruth