* 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 (Reuters) - 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 minister said.
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 elections.
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 next week.
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 type.
$1 = 1.4452 Bulgarian Levs Additional reporting by Angel Krasimirov in Sofia and Sujata Rao in London; Writing by Matthias Williams; Editing by Ruth Pitchford