UPDATE 3-Court rules Bulgaria's Kremikovtzi insolvent

(Adds economy ministry, bondholders comment, date of insolvency)

By Tsvetelia Ilieva

SOFIA, Aug 6 (Reuters) - A Bulgarian court ruled on Wednesday that ailing steelmaker Kremikovtzi KMKV.BB was insolvent, after its debt ballooned to 1.7 billion levs ($1.35 billion), opening the way for its sale.

The world's largest steel producer, ArcelorMittal (ISPA.AS: Quote, Profile, Research) (MTP.PA: Quote, Profile, Research), and Ukrainian tycoon Konstyantin Zhevago are vying to take over the mill, Bulgaria's industrial pride during the communist era.

The court said it has opened a bankruptcy case and appointed a temporary receiver for the plant, which employs about 8,000 people and indirectly supports another 90,000.

The economy ministry said in a statement the court has set Sept. 26 as the date for the first meeting of creditors, and set Dec. 31, 2005 for the starting date of the insolvency.

The ministry welcomed the court's ruling and said it would help the mill, which employs 8,000 people, keep its workforce, restore its production to full capacity, and carry environmental upgrades needed for an EU-required operational permit.

"These are the necessary preconditions for a forthcoming successful sale of the plant to a strategic investor," it said.

Both ArcelorMittal and Zhevago have said they would prefer the mill to go through insolvency before a sale is completed.