What is the “financed option” and why you have to be extremely cautious if you want to utilize it
The Bulgarian Citizenship by investment program requires an investment of a total of 1 024 000 EUR in different financial instruments. In return, the applicant can apply for Bulgarian citizenship in only 12 months, which makes the Bulgarian CBI the top EU choice. We will go below in great detail about the cost of the “financed option” and how it works. But first, let’s outline the two main risks for you, if you ever opt to go for it:
The “financed option” is extremely risky. Be on alert!
First of all the “financed option” is the “weapon of choice” for all scammers around the world who try to get rich fast from the Bulgarian CBI program. Be extremely cautious if you are ever offered it!
The scam-agents prefer to hook clients who don’t have the required investment capital, but are ready to pay few hundred thousand to circumvent the investment requirement. The amount of such clients is much larger than of those who have net worth of more than one million Euro. Therefore the scammers get access to a lot of prey. At the same time, the scammers also prefer charging the money for financing the investment on top of their legal fees, before they let you down. So it is one bullet two kills for them – much more clients and much more money to collect! Needless to say the “investment option” will never work with them.
The position of the Bulgarian government
The other huge risk is the stance of the Bulgarian authorities towards clients who go through this route. Although it may be allowed by law, the citizenship naturalization process is quite sensitive to subjectivity. The last thing you want is to have the state officials thinking of you as someone who is “buying citizenship” rather than a “genuine investor”. The position of the Bulgarian authorities is also backed in full by the European Commission, so don’t expect this to change any time soon.
We recommend you reading Second Citizenship scams in HONG KONG for additional information. Although it mainly concerns our clients from Hong Kong, it is quite relevant to this article too.
So let’s get back to the particularities of the “financed option”
The financial instruments
There are many different options for the citizenship applicant to choose from. Still, 99% of all Bulgarian citizenship candidates opt for either:
- Bulgarian Eurobonds (can be denominated in EUR or BGN) or;
- Bulgarian shares, listed on the stock exchange.
Therefore, for the purposes of this article, we will refer only to these investments.
How the investment option works
In simple terms, the investment option works as follows. The applicant obtains credit line form a bank for the purchase of the bonds (Eurobonds) or shares. To guarantee repayment of the credit line, the applicant pledges the bonds/shares with the bank. It works pretty much like buying a house on mortgage.
As the bonds are extremely secure instrument and have very low volatility, the bank may theoretically finance the full amount (100%). In most cases however, the bank will finance about 90%, to cover eventual price decline, fees, interests, etc. For shares, as they are much more volatile than bonds, the bank will usually only finance about 50% of the investment.
How much the investment option cost
The majority of the cost of the investment option goes for paying the interest that the bank will charge for the credit line. This will be decreased with the income the investor will get from the bonds/shares.
The interest rates
So let’s give you an example for investment option in bonds. Let’s take that the bank will charge 3,5% p.a. for the credit line. The return of the bonds, we take it to be 0,8% p.a. These numbers may fluctuate, but are good for reference. The precise interest rates can be determined only at the moment of signing the credit agreement.
As per the conditions of the CBI program, the initially required investment is 512 000 EUR. Twelve months later, an additional 512 000 EUR is required. Let’s also assume that the citizenship will be obtained 6 moths afterwards. By law, the investment must be kept for at least 2 years after the citizenship certificate is issued.
With all being said, you will need credit line for the following amounts and terms:
- 512 000 EUR for 42 months (12 months for the permanent residency stage + 6 months to obtain citizenship + 24 months waiting time to liquidate the investment, set by law);
- 512 000 EUR for 30 months (6 months to obtain citizenship + 24 months waiting time to liquidate the investment, set by law).
With a little bit of accountancy tricks, the calculations show that you will need to finance 512 000 EUR for 72 months. The “real life” financing will be for 42 months only though, but will be partially calculated on 1 024 000 EUR. The result is the same, so we will calculate 512 000 EUR for 72 months.
You will therefore need to pay to the bank 107 520 EUR (512 000 EUR at 3,5% for 72 months) in debit interests for the credit line. The bonds will pay you coupons of 24 576 EUR (512 000 EUR at 0.8% for 72 months). So the difference, that you will actually owe to the bank will be 82 944 EUR (107520 EUR – 24576 EUR).
But there are of course additional bank fees, agent fees, notary fees, legalization and translation fees. From experience, these come to at least 30% from the interest charged. Having in mind that nothing works as planned and there will be certain delays (to buy and sell the bonds, to get the citizenship certificate, to close the credit line at the end, etc.), you should add another 15% from the interest charged.
At the end we come to a total amount of 131 328 EUR as your cost to finance your investment.
Is it wise doing the financed option? We would definitely say NO! With all risks associated and the cost that come on top, we would recommend you to stay clear of it.
If you need any additional information, please contact us for assistance,