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The privatization of "Oltchim" is the hardest after that of "Sidex" Galaţi, several analysts in the market consider. Some of them think it will take a maximum of flexibility from the state to solve deal with this affair.
The plant has been operating at low capacity and owes over 700 million Euros to the AVAS, Electrica and banks. Under these circumstances, complying with the deadline set by the IMF for privatization (ed. note: September 26th) could be the only chance of saving "Oltchim".
Before the privatization, the "Sidex" Galaţi steel plant was close to bankruptcy, having accrued huge arrears to its suppliers, unable to raise financing and being leeched in every possible way, according to a report made in 2008 by Radu Sârbu, called "The Odyssey of the privatization of < < Sidex > > (see INSERT). According to the quoted article, the bankruptcy of the plant would have caused the collapse of BCR, which - at the time - would have led to the crash of the Romanian economy.
At "Oltchim", the government completely changed the privatization strategy at the last minute, even though the plant had already summoned the shareholders to approve the conversion of the debt towards the AVAS into equity.
In last Thursday's session, the government abandoned the conversion procedure and instead for the collective sale of the block of shares it owns in "Oltchim", representing 54.8% of the share capital and of the receivables of the AVAS and "Electrica" SA, amounting to 1.8 billion lei, in other words 56% of the total debts of the company.
This approach could be a proof of flexibility from the state, but some are suspicious that this new strategy is intended as a favor for a cherry-picked investor.
• Cristian Duţescu: The conversion wasn't to anybody's advantage
Lawyer Cristian Duţescu considers that, in the way it was proposed, the conversion wasn't going to benefit anybody. He said: "It would be very good if a solution could be found that would include a reorganization plan which would comprise minimal requirements which would be aimed at saving the company".
On Thursday, the head of the OPSPI, Remus Vulpescu, told "BURSA" that the assignment of the receivables against "Oltchim" will be done at "market prices".
Cristian Duţescu had the following to say regarding that statement: "I don't really understand what selling the receivables at market prices means. What is the market price for some huge receivables? Had they thought of a transparent model, according to the rules of the exchange, by which they would issue bonds, it would have been something else. It would have been a logical measure which would have been logical and transparent. I even proposed such a solution, in informal discussions".
• For now, PCC SE will not comment on the government's strategy
Even though its officials are usually very vocal, this time "Oltchim" minority shareholder PCC SE refrained from commenting on the new strategy of the government.
Wojciech Zaremba, the representative of PCC SE in Romania, had the following statement to make: "The topic of the government's decision to change the privatization strategy of Oltchim is a very important one and should be approached with responsibility. PCC SE wants to first of all review all these new elements of the new strategy for the privatization of Oltchim. PCC SE can not make comments based on such scarce information".
• Marcel Murgoci: Years wasted in the privatization of "Oltchim"
Marcel Murgoci, Director of Operations at Estinvest Focşani, does not believe that the decision of the Government was made because the new privatization procedure was more attractive: "I think there was no chance the share capital increase by converting the debt of Oltchim towards the AVAS into stock would be implemented. Because of this, years were wasted in the privatization of Oltchim, considering that the method for the conversion of debts was one that was subjected to the approval of the European Commission (approval which took quite a while to get).
Therefore, the new privatization method is a viable alternative".
He said that the government is a lot more resolute when it comes to completing the privatization process, being spurred by the IMF (which is far more agressive). According to Mr. Murgoci, there is just one obstacle in this process - the global economic crisis: "This will not help bring many quality investors, and will especially affect the price paid for Oltchim".
Marcel Murgoci said that he was surprised by how careless Remus Vulpescu, the head of the OPSPI, gave information to the media concerning the privatization process and the context in which it appeared.
Vulpescu made statements on the change of the privatization strategy and revealed information concerning the negotiations with PCC SE.
Marcel Murgoci has the following opinion: "I think that Mr. Vulpescu should have known that the object of the privatization process is a company listed on the stock exchange and therefore, any statement (especially those concerning the privatization) could affect its market price. Still, I can't suspect that he would have an interest in that regard, but it would have been far more decent to do what he did using an official notice sent through the usual channels used for communicating with investors".
On Thursday, trading in "Oltchim" was not halted, after the statements made by the official of the OPSPI, but the Stock Exchange deemed it necessary to do so on Friday, after the government approved the new privatization strategy.
The BSE halted trading in OLT "in order to ensure an orderly market and to ensure equal access to the information needed for making investment decisions (investor protection)", according to the code of the Exchange.
Still, the BSE only disseminated information concerning Friday's protests which took place at the plant, not about privatization.
• About the privatization of "Sidex"
The metallurgic plant of Galaţi - "Sidex" - was acquired from the Romanian state by LNM Holdings NV in November 2001. The price paid was 70 million dollars. The deal comprised investment commitments of 351 million dollars and a working capital of 100 million dollars. Starting with 2004, Mittal Steel Galaţi is part of Mittal Steel, a company consisting of the merger of LNM Holdings NV and Ispat International N.
The article "The Odyssey of the privatization of < < Sidex > >", published by Radu Sârbu, on June 22nd, 2008 says: "Compared to consultant estimates, the terms of the deal were inexcusably bad for the Romanian state. Aside from the fact that the price of the stock was paid in installments, the Năstase government capitalized into stock not just the receivables of the state budget, but also the receivables of the banks, the energy and transports providers (ROMGAZ, ELECTRICA, SNCFR, PETROM), as well as the receivables of the AVAB. The conversion of the debts into stock was made at a price of 25,000 ROL/share, and the LNM only paid 10 cents/share. The accepted price was just one third of the one that resulted from the appraisal of the American experts.
In reality, the Năstase government received 70 million with one hand, and paid almost 1.8 billion dollars with the other! Aside from canceling the penalties of 600 million dollars and selling for a pittance the debts of 886 million dollars, the government also accepted to offer other facilities: the exemption from taxes of the imports of equipment for the investments for which the commitment was made, the government also bore the costs of the layoffs: 200 million dollars for 2-year unemployment aids and 20 more million dollars for supplemental unemployment pay. Moreover, the government granted to the second largest (at the time) steel maker in the world, a tax break which was huge compared to the precarious state of the country's budget at the time: 800 million dollars, representing VAT and 200 million dollars representing profit tax, postponed for five years. The deal led to significant suspicions of corruption concerning the former government of Romania.
When the Indians took over the plant, they gave the commercial department 10 minutes to clear up their desks. This is how they begun the "cleanup" at "Sidex". This was followed by recapitalization, the payment of the outstanding debts towards the suppliers and the profitable relaunch of its activity. Perhaps as proof of the theft that had been going on before the privatization, the plant became profitable before it even made any investments in techno; only the rules and the motivations changed. Today, "Sidex" produces more steel, with a lot less employees (60% of the number of employees it had before the privatization), it has no outstanding debts and it pays significant amounts to the state and local budgets. Sure, the growth of the global steel market has a significant contribution to the current success of the plant of Galaţi, but the core factor behind the change is the privatization. The privatization of "Sidex" could be considered a success, not based on the terms of the deal, but on its consequences".
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• Oltchim will no longer send its employees into technological unemployment
On Friday, the Board of Directors of Oltchim decided to cancel the decision to send over 500 employees into technical unemployment between August 27th and September 30th, according to a press release sent to the Bucharest Stock Exchange.
The management of the plant had announced that it would send 506 employees into technological unemployment, due to the lack of working capital, needed to restart petrochemical operations in Piteşti.
In the same period, the employees would receive 80% of their base salary.
The management of the plant went back on its decision after the employees of Bradu (in the county of Argeş), which belong to the Petrochemical Division, which were going to be sent into technological unemployment, started a protest in front of Oltchim on Friday.
Protesters asked for the resignation of CEO Constantin Roibu, who, according to the press, went among the people to try and calm them down. (Viviani Mirică)
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