"Romcab" putting banks through the wringer

The request by "Romcab" (MCAB) to enter insolvency, submitted on Friday and reported yesterday to the Bucharest Stock Exchange (BVB), is causing anxiety among Romanian banks, considering that many of them have exposure to that company, as the loans have been guaranteed with inventory or machinery.

After the first nine months of 2016, Romcab reported total debts of 940.94 million lei, of which 74.65 million lei long term (down 9.01% YOY compared to 2015), and 866.29 million lei short term (up 27.59% YOY compared to 2015). Out of the total short term debt volume, commercial debt rose 43.76% in the first nine months of 2016, to 509.34 million lei, whereas loans amounted to 341.22 million lei. Long terms loans stood at 13 million lei, on September 30th, 2016.

One of the institutions that could have problems is state-owned EximBank, which funded in 2012 the new Romcab factory of Acăţari, in the county of Mureş, as part of a project co-financed through the European Regional Development Fund. At the time, EximBank granted the company a mix of lending products of approximately 200 million lei.

In 2012, Călin Popescu Tăriceanu was also present at the inauguration of the plant, and he made the following statement, according to ziaruldemures.ro: "I admire the entrepreneurial spirit of main shareholder Zoltan Prosszer, whom I have known for many years, and whom I now see moving to another level, making this investment to expand Romcab, a company which has a long tradition in Târgu-Mureş".

On June 30, 2015, the balance of the loan facilities granted by EximBank was 102.3 million lei, according to the prospectus by which Romcab went from the Rasdaq market, to the regulated market of the Bucharest Stock Exchange.

According to the same document, EximBank had guaranteed 80% of the company's loans taken out from other banks.

The representatives of EximBank gave us the following statement yesterday: "EximBank will act in accordance with the legal provisions in effect and we express our confidence that the chances of the process of reorganization of the company being successfully completed will be maximized and that the optimal solutions will be tried in order to witness a continuation of business on a more solid basis".

Some sources also claim that EximBank has another exposure of 60 million lei to Romcab, this time in its own name, and of approximately 20 million lei, in the name and on behalf of the state. Thus the insolvency of Romcab could put the state-owned bank in the red, according to some opinions in the market.

It would seem that the bank's mistake was to accept the Romcab inventory as collateral, based on an appraisal conducted by an independent company. Market sources are saying that when the officials of the bank wanted to check the inventory, they found it didn't exist, which even led to a criminal complaint being filed against the evaluator.

On September 30, 2016, Romcab had reported an inventory of 629.62 million lei, up 41.13% YOY compared to 2015.

The insolvency of Romcab doesn't bode well for the International Investment Bank (IIB) either - a multilateral development bank which, in 2015, granted the cable maker a 3-year 15 million Euros loan, to finance its main activities, especially for the acquisition of raw materials from various producers, including from other countries that are members of the bank.

By the time the newspaper had gone to the printers, the representative of the IIB had not offered us an opinion on the insolvency of Romcab.

According to the Romcab prospectus, Banca Transilvania had an exposure to Romcab of approximately 200 million lei in investment loans and other credit facilities. BT Leasing had also granted the company 3.27 million Euros in financing.

The representatives of Banca Transilvania declined to comment on the matter. In the market, investors don't seem too concerned over the effects of the Romcab insolvency on the bank.

BCR, Piraeus Bank or Banca Feroviară declined to send us their opinions on the effects of the insolvency of the cable maker.

On other hand, "Prodplast" and "Teraplast", listed on the BSE, felt the need to reassure their investors.

"Prodplast" yesterday announced that it was paring down its contractual relations with Romcab Târgu Mureş, as a result of the latter declaring its insolvency: "We want to mention that the debt that Romcab owes our company is entirely insured through an international business credit insurance policy, and the claim has already been submitted for resolution".

"Teraplast" representatives have also announced the following: "Teraplast, the biggest Romanian PVC processor, wants to make it clear that Romcab entering insolvency does not significantly affect the company's business.

Teraplast is a supplier of granules for Romcab. According to internal estimates, Teraplast will have to set up a provision of approximately 200,000 Euros for the receivables pertaining to Romcab. That amount represents approximately 0.1% of the amount of the Romcab debt, according to the financial results published by the Târgu Mureş-based company.

Teraplast applies prudential rules, which means that since 2015 the receivables of the granules business line are insured with a strong insurance company (with an A3 Moody's rating).

5 years ago Teraplast created a credit bureau, similar to that of banks, which tracks closely every customer, and the credit limits are granted after a careful analysis of the financial ratios. Recouping the receivables is the basic rule for every sale made by Teraplast. We hope that Romcab will find solutions to continue its activity despite the problems it is facing.

Teraplast will continue its cooperation with Romcab as the geographical proximity and the quality of our products is mutually advantageous".

MCAB shares had significant drops in the beginning of this year, amid information that the company had defaulted on some payments, followed by a subsequent rise, after the company offered explanations. The MCAB shares yesterday reached 4.21 lei/share, after a drop of -43.26%, in the last month, according to data from the BSE. The stock had another drop of 14.96%, to 3.58 lei/share, after the announcement of its filing for insolvency was posted on the BSE platform.

Some sources claim that, when guaranteed promissory notes aren't paid, as was the case with Romcab, the Police usually refers the matter to itself. The representatives of the police have been unable to provide such information, for now.

The representatives of "Romcab" have sent the following report to the Bucharest Stock Exchange: "Following the exhaustion of any other alternatives to surmount the difficult period that we are going through, as we have presented them in our press release of January 22nd, 2017, we hereby inform you about our intention to initiate the judicial reorganization procedure, as we have found it to be the solution for the efficient and effective turnaround of the activity of «Romcab». To that end, we have filed on February 10th, 2017 a request to enter insolvency, together with the firm intention to turn our activity around through a reorganization plan, which the County Court of Mureş will rule on".

Zoltan Prosszer, the president of the company, had previously stated that some creditors had "run out of patience" and had initiated the foreclosure, for substantial amounts.

Mr. Prosszer also told us that the bonds issue of 200 million Euros, which the shareholders have approved will be postponed: "The bonds issue has been put on hold, we have reconfirmed that just half an hour ago, they need (ed. note: investors) a stable situation, a voted reorganization plan, maybe some ratings from ratings firms, aside from the previous situation and we are moving forward".

"Romcab" produces cables, electrical conductors, power cords and electrical cabling. The company is controlled by "Sadalbari" Târgu Mureş, with a stake of 69.02%.

On January 27th, Zoltan Prosszer assigned to Roxana Tarcă (the representative of the investor relations department of Romcab) 35 of the 45 shares owned in "Sadalbari". This increased Roxana Tarcă's stake in "Sadalbari" to 46.7%, while Zoltan Prosszer was only left with 9.35%. The "Sadalbari" shareholder structure includes Rodica Dochiţoiu (with 37.38%) and Amberyce Limited (with 6.54%), according to data from the Official Gazette.