"Rompetrol" wants the state as a partner in "Petromidia"

• The company claims that it can also resort to converting bonds into stocks to pay off the debts

The Kazakhs of "KazMunayGaz" (KMG) have not yet completed the negotiations with the Ministry of Finance concerning the buyback of the bonds, but will do so by the end of September. They want to have the Romanian state as a partner in the refinery, the CFO of the "Rompetrol" group, Dmitry Grigoryev, said yesterday in a press conference. "We want to honor all the terms of the contract concerning the debts of Rompetrol Rafinare that were converted into bonds and the decision will be made at the end of September", he said in a conference.

According to the official of "Rompetrol", as well as to the lawyers of the group, the company can pay off these debts, by September 30th, 2010, by partial or total buyback or by converting them in part or in full into shares. Dmitry Grigoryev admitted that the discussions with the Ministry of Finance are focused on this contract, and implied that the state is expecting payment in cash, whereas "Rompetrol" favors the option of the buyback combined with conversion into stock. The attorneys of "Rompetrol" claim that the group controlled by KMG is perfectly entitled to choose this method of paying back its debt, in compliance with the contract concluded with the state.

In the beginning of August, "Rompetrol" paid around 71 million dollars to the state service of the debt. Assuming that "Rompetrol" would no longer make any payments by the maturity of the bonds, the rest of the bonds would be converted into stock, with the state becoming a significant minority shareholder in Rompetrol Rafinare, holding over 40%, the lawyers of the group stated.

The CFO of "Rompetrol" said: "The state does not want to be a shareholder in Rompetrol Rafinare. We are reviewing the possibilities of managing the refinery together with the state. If the refinery won"t have a cashflow, we have the option of shutting it down. This option is always on the table if the refinery can not support itself, without a capital infusion from the shareholders. But KMG intends to develop Rompetrol, to keep the existing jobs and to turn Petromidia into a center of excellence. We are here for the long term".

Dmitry Grigoryev went on to say: "The institutions of the Romanian state have a hostile attitude towards us. However we are open to negotiations and we hope to find a solution that would be beneficial for both parties. The Ministry of Finance has challenged the decision of the General Meeting of Shareholders to increase the share capital of Rompetrol Rafinare, even though it knew that the operation was intended to provide an influx of cash for the payments towards the state".

On Tuesday, the Ministry of Finance lost the first trial against Rompetrol Rafinare by which it challenged a share capital increase of 450 million lei, said Ana Diculescu Şova, of law firm NNDKP, who added: "The Ministry has five days to file an appeal. We did not consider this lawsuit as an attack, but rather a problem for the state. Our goal was not to attack the authorities. From the defense filed on Tuesday by the Ministry of Finance, we can see that the state is concerned with finding solutions to buy back bonds, by September 30th". She said that another hearing is scheduled for September 7th, concerning an opposition submitted against the decision to increase the share capital of "Rompetrol Rafinare".

When asked how the funds raised from the share capital increase would be used if the courts were to approve the operation, Dmitry Grigoryev replied: "Like we announced in the beginning of the year, in 2010 we have scheduled payments of around 100 million lei to the state, as well as major investments in Petromidia. We have paid 71 million dollars, to buy back part of the shares, and in 2010 we paid 24-25 million dollars to the state in interest on bonds. If we take the planned investments into consideration, that equals the amount that we can get from the share capital increase".

Another institution that the attorneys of "Rompetrol" view as hostile is the Romanian National Securities Commission (CNVM, which has suspended the delisting of "Rompetrol Rafinare" (RRC) until the clarification of the situation of the buyback of the bonds. "Rompetrol" has been waiting since September 4th for an answer from the CNVM on its complaint against the decision to block the delisting of Rompetrol Rafinare, and the group plans to go to court if the CNVM does not revoke its decision. Gheorghe Muşat, a partner with Muşat & Asociaţii, considers that the CNVM acted in abusive manner that is unprecedented against "Rompetrol Rafinare"by blocking the delisting, after forcing the company to make a public takeover offer. "We will most likely sue and we have no doubt that the courts will rule in our favor. The contestation we have submitted has about 30 pages", Mr. Muşat said. "The CNVM acted like an authority doing someone else"s bidding instead of acting as a regulator. It is shocking. I don"t see any connection between the buyback of the bonds and the delisting. The CNVM has prevented Rompetrol from using its legal right", the attorney concluded.

Dmitry Grigoryev added that the KMG group has made the commitment to export 4-5 millions of crude to Romania every year, and added that the Petromidia refinery needs to continue working, even though it is currently losing money. "In our opinion, this company has a future and sooner or later the crisis will pass", he said, and he explained that the lack of cash is due to the massive investments made over the last years and the very thin margins on refining activities.

The "Rompetrol" official said: "Since 2007, KMG has invested 1.8 billion dollars, mostly in Romania"s economy and has kept its workforce of almost 10,000 employees in 12 countries steady. We want to develop the infrastructure of Rompetrol, to expand the group and to keep our workforce active. We pay 1.5 billion dollars a year in taxes, including excises and VAT".

The Rompetrol Group, which is fully owned by KazMunaiGaz of Kazakhstan, has to reimburse 2.4 billion lei in service of the historical debts of the Petromidia refinery, which come from an issue of state bonds of 2003. In October 2003, the Government issued an ordinance which decreed the conversion of the arrears that the company had to the state budget on September 30th, 200 into a 7-year bond issue worth 603 million dollars, including interest rates and penalties.