THE CHRONICLES OF AN ANNOUNCED JACKPOT: SNIF Does Not Die, It Transforms

• The company will be privatized in two months

• The buyer is not compelled to maintain the core business

• Financial supervision extended until year-end

Cătălin Deacu

The National Land Development Company (Societatea Nationala de Imbunatatiri Funciare - SNIF), the only State-controlled company specialized in maintaining and repairing irrigation systems, is scheduled for privatization in the next two months and the buyer will not have any obligation to maintain the core business. The decision was made by the State Property Agency (Agentia Domeniilor Statului - ADS), the sole shareholder in SNIF, following discussions with representatives of the Competition Council and the European Commission, inside sources told BURSA.

The future owner of SNIF will have practically no obligation to keep the core business of the company as the Romanian authorities have decided that such obligation would artificially decrease the sale price. Considering that SNIF"s assets have been assessed at more than 110 million EUR, the privatization process promises to be one of the most controversial in Romania"s post-communist history.

• SNIF"s assets undervalued three times

According to an appraisal report dated April 2008, SNIF is worth only 40 million EUR, which is nearly three times less than its real value. All the former managers of the company concur the information.

However, ADS representatives told BURSA that SNIF"s assets would be appraised again in up to one month as the absence of the appraisal report was the only item preventing the release of the tender book and the start of the privatization process. The official reason is that the report dated April 2008 needs to be updated after six months, which is "standard practice among appraisers," as our sources said. The unofficial reason is that the ADS management believe that SNIF is worth much more than 40 million EUR because some of its lands have been undervalued.

• What is for sale?

ADS officials said that SNIF would be sold together with its 131 sites measuring approximately 2 million square meters. However, SNIF also has another 30 sites to which the company does not have the ownership deed. Theoretically, this is another impediment for the privatization process, but ADS has found a solution: the future owner will buy the 2 million square meters of land and the 131 buildings and receive custody of the assets to which SNIF does not have a deed.

The State would become a shareholder in the company and, following the revaluation of the 30 sites and a subsequent increase in the share capital, decrease its stake to almost zero.

• Special administration for the fourth time!

Valentin Apostol, Head of the Land Development Directorate of the Ministry of Agriculture and former Director of SNIF, told BURSA that the special administration of SNIF, which would have expired in four days, had been extended until 31 December 2009 in order to help the privatization process. According to the respective decision (published in the Official Journal on 17 June), the financial supervision exercised by the State would end upon the privatization of the company.

Once again, a form of State aid is granted without the Ministry of Agriculture having consulted the Competition Council regarding the extension of the special administration of SNIF (which Valentin Apostol confirmed) under the pretext that the company"s financial condition did not allow for any delay.

"We have taken this course of action because SNIF has not collected the money for the works they performed and has invoices to pay. It also owes money to creditors, who are currently demanding insolvency," Valentin Apostol told BURSA.

• About SNIF"s business and potential

As previously written in BURSA, the current management of SNIF asked the Ministry of Agriculture and ADS to allow the company to start the insolvency procedure arguing precarious finances. However, both the Ministry and ADS denied the request.

The insolvency procedure was intended to provide a mechanism to sell SNIF "piece by piece" in order to repay debts to competing private companies and other parties. It is general knowledge that SNIF is extremely attractive to private companies in the same business which currently employ SNIF as a subcontractor.

The new owner will also take over SNIF"s debts, which amount to 49.8 million RON, according to Finance Ministry"s reports. However, SNIF also has off-balance-sheet debts in the amount of 348,947,432 lei, which was revealed by an audit performed by BCEOM in 2004 following the controversial agricultural programme Romag "98. If the off-balance-sheet debts remain frozen as they have been so far, SNIF will be sold for quite a good price.

If the new owner buys the company only for its land and subsequently sells the land plot by plot, a tremendous business opportunity would be lost. Romania"s huge agricultural potential will be eventually put to use and the overall surface of irrigated farming land may triple by 2012 to a planned 1.5 million hectares. The country will definitely need a "mechanic" for land development works and SNIF is and will probably be unrivalled on the land development market. In other words, whoever acquires control over SNIF will have a great opportunity to make a hefty profit from the agricultural sector and not only...