The petrochemical division of "Petrom", a jackpot for "Oltchim"

• "SMH Smith Hodgkinson" has revalued the assets that Oltchim acquired from "Petrom" at 89.5 million Euros

The shareholders of "Oltchim" have reasons to rejoice just six months after it acquired the Arpechim" petrochemical division from "Petrom". The company "SHM Smith Hodkinson" has revalued the assets of "Arpechim" at 89.5 million Euros, which means it is currently valued at about 7 times the price paid for it by "Oltchim" in December 2009.

According to its officials, at the time, "Oltchim" bought the petrochemical division of "Arpechim", for 13 million Euros.

Also acquired along with the Petrochemical division were its hydrocarbon inventories, as well as the investments made by "Petrom".

Shareholders of "Oltchim" have approved the results of the revaluation in last week"s General Shareholders" Assembly, and the value of almost EUR 90 million will be recorded in the company"s financial statements.

Which now allows "Oltchim" to borrow more. Besides, based on the revaluation, the management of "Oltchim" has already hypothecated some of the assets it acquired from "Petrom" and wants to do the same with the rest of them to secure working capital.

Alexandru Bucşă, the general deputy manager of "Oltchim", explained for BURSA, how this revaluation came to this result: "SMH Smith Hodgkinson has the greatest expertise in Romania when it comes to appraising this kind of assets (refineries, petrochemical installations), and they performed the evaluation of the most important assets of Petrom/OMV, Rompetrol, Rafo, etc. You have to understand it is one thing to evaluate an asset that will be sold off as scrap metal and it"s completely another to evaluate the assets which are part of an integrated business such as Oltchim. SMH did the evaluation knowing that we want to use the assets right away in the production process, not to let them go to waste... They also knew that we wanted to invest another 10-14 million Euros in the overhaul of installations ... They also considered the strategy and the management of Oltchim of operating in an integrated manner at an optimum capacity".

The results of the evaluation were agreed upon by the financial auditor of the plant, KPMG, which advised its client to acknowledge the difference between the amount paid and the revised value of the assets in the profit and loss account of the company, in the revenues category. The revaluation was accepted by two other commercial banks, CEC and BRD, who lent funds to "Oltchim" based on the collateral set on the assets of "Arpechim", according to some sources from the market.

Alexandru Bucşă said: "I have asked the opinion of KPMG our auditor on the revaluation of the assets and they have advised us to record the differences between the amount that we paid for the petrochemical division of Arpechim and the result of the revaluation in the profit and loss account as profit. Based on the IFRS standards, Oltchim, recorded this transaction as a deal and not just a simple acquisition of assets. Oltchim needs to operate in an integrated manner with the petrochemical division of Arpechim to become profitable".

According to sources in the market, immediately after the revaluation, Oltchim took a loan from CEC Bank amounting to EUR 13.5 million, partly to finance the repairs of the installations of Arpechim and partly to get working capital. The company also borrowed from 700,000 Euros from BRD Soc-Gen, and pledged some of its assets for the two loans.

"Of course I am interested in using the remaining assets to finance the need for working capital. We would need 50 million Euros a month in financing to operate in an integrated manner", said the deputy manager of the plant.

The petrochemical division is currently undergoing an overhaul, following which the acquired installations were brought up to standards and recertified.

The overhaul is scheduled to be completed by the end of this month, and the new assets are expecting to be used for production for "Oltchim" starting with July. The management of the plant hopes the plant will generate an operating profit from its first month of integrated operation:

"At the moment, the situation in the market favors the company"s products. Oltchim has a guaranteed market for its products, and it can sell them very quickly due to the high domestic and foreign demand that exists. It"s a shame that it is operating at just 40% of its capacity", said Alexandru Bucşă.

The plant of Vâlcea has been operating below capacity since November 2008, when "Petrom" decided to shutdown "Arpechim".