How to select the suitable Bulgarian Bond(s)

Bulgarian sovereign bonds
"Knowing the right detail gets you a great return. Ignore them and you just crash & burn." - Robert Rolih

Bulgarian bond market Sovereign bonds are considered to be not only the safest investment option that qualifies under the terms of the Bulgarian Citizenship by Investment Program, but also the safest investment among the whole spectrum of all financial instruments (if issued of course by country with adequate credit rating, such as Bulgaria). Logically, the vast majority of our clients opt for Bulgarian bonds.

So what should you know about the Bulgarian sovereigns and also about the bonds in general? Most importantly, how to choose the right bond that will qualify for the Bulgarian Citizenship by Investment Program?

We will not dig too much into the details of the bonds in general. The most important for you, as investor to know, is that the sovereign bond is a bond, issued by national government that pays periodic interest to its holder. The bond is usually traded on the secondary market and its day to day value depends greatly on the difference between the fixed coupon it pays out and the current interest rates on the market, as well as the remaining time until the maturity of the bond. Roughly speaking, when the interest rates fall, the value of the bond increases and when the interest rates rise, the value of the bond declines. Although this is a bit contra intuitive, it has a very simple explanation - when the interest rates decline, the bond itself becomes more expensive as it pays out higher interest rate (defined by its fixed coupon) than the interest one would receive for a fresh bond investment. The same applies for the reversed scenario. The sooner the maturity of the bond issue, the closer the value of the bond to its issue and redemption price. These are the basic principles of the sovereign bonds as well as all bonds in general.


Eligibility of your bond(s) for the Bulgarian Citizenship by Investment Program

But what about the suitability of certain bond issue for the purposes of the Bulgarian Citizenship by Investment Program? How can you be sure, as Bulgarian citizenship applicant, that the bond you have picked up can be used as eligible investment for the program?

The Bulgarian law

Article 25 from the "Bulgarian Law for the Foreigners", and more precisely paragraph 1, p.5, letter B, specifies the eligible bond investments for the citizenship program as "Bonds and treasury bills as well as derivative instruments issued by the state or the municipalities with a residual term to maturity of not less than 6 months". Sounds simple? Unfortunately, it is not.

The interpretation

Selecting the right bonds that will qualify under the Bulgarian Citizenship by Investment Program is not as simple as it may look at first glance. The financial products and especially the government bonds have extremely complicated structure. Their financial prospectus (the document that sets their legal characteristics) is utterly comprehensive, least to say. Whether a selected bond is eligible for use under the Bulgarian CBI program is so complicated, that the Bulgarian government has authorized a special State Investment Agency to certify the investment of the citizenship candidate about its compliance with the citizenship program. The Bulgarian banks that purchase the bonds on behalf of the client (the citizenship candidate) are not authorized to state whether these bonds fulfills the requirements of the citizenship laws. Not only that, but the banks have no knowledge and will not provide advice about the selection of bonds.

So is the citizenship candidate left in the dark? Not really...

The solution

The best solution for the citizenship candidate is to employ a professional registered company who will prepare tailored advice and the relevant "legal suitability report" for the chosen bond issue that is available for the specific period. Not only will the citizenship candidate be ascertain that the bond or bonds he has chosen will meet the requirements of the Bulgarian citizenship laws, but such a professional choice will ensure maximum return for the investor, based on the coupon, the market price, the maturity and many other factors of the selected bond issue.

Of course such a professional assistance will entail additional costs, but paying 1-3% will definitely prove worthwhile as the investor will not only achieve better return rate that will compensate the cost for the report, but will also ensure that the citizenship application will be processed on time and there will be no charges for reselling the non-suitable bonds.

The consequences

The consequences of choosing the wrong bond issue can be devastating. Not only will the investor need to resell the bond, attracting additional and hefty bank charges, but there may be even disastrous tax and legal consequences as the fast resale of bonds can be deemed as professional trading activities under certain conditions.

Worst of all, the citizenship application will be definitely delayed and in some cases can be even denied altogether.

How can we assist?

We can introduce you to professional company who will administer the selection of bonds for you and will prepare the required legal report so you can be guaranteed that your choice will qualify under the citizenship program and your returns will be maximized. The fees will be preferential and you can rest assured that you will be not overly charged by any unscrupulous investment advisors.