THE PRIVATIZATION OF "OLTCHIM" MRU- style acceleration

• Four companies, interested in the plant

• The government is preparing an emergency ordinance to prevent the minority shareholders from voting against the debt to equity conversion

• Lawyers say the ordinance is illegal

• Trading in OLT has still not been halted

The Romanian authorities have begun moving swiftly in the privatization of "Oltchim", immediately after receiving the agreement of the European Commission for the conversion of the receivables of the AVAS into stock.

The announcement concerning the privatization of the block of shares of 54.80% in OLT owned by the state was published yesterday by the Office For The State's Interests and Industrial Privatization (OPSPI).

In yesterday's issue, the BURSA newspaper presented the method which the Romanian state will use for the sale of the stake in the plant.

The authorities have announced that they have opted for a combined method, which involves a first negotiation stage based on preliminary non-binding offers, followed by a sealed-bid auction.

The sale price will be made public through another announcement which will be released at least 30 days before the holding of the sealed-bid call for tenders.

The potential bidders will be informed that, throughout the privatization process, a change in the size of share capital of Oltchim is possible, and implicitly of the block of shares put up for sale, following the conversion into stock of the company's debt towards the AVAS (ed. note: Authority for State Assets Recovery).

• Negotiations with "OMV Petrom" for "Arpechim"

Any persons interested in the offer of "Oltchim" are notified that "for the purpose of a potential vertical integration of the activity of Oltchim and of that of the Arpechim Piteşti refinery (currently owned by OMV Petrom and traditional supplier of Oltchim), without subjecting the privatization process of Oltchim and the current offer to any conditions, the option exists to negotiate directly with OMV Petrom, via the OPSPI, correlated from the perspective of the synergies with the privatization of Oltchim, the terms of a possible acquisition of the assets of the Arpechim refinery from OMV Petrom".

The shareholder structure of the chemical plant of Vâlcea comprises "PCC SE", which owns 17.47% of the shares, and the investment fund "Carlson Ventures", registered in Great Britain, with 14.02% of the shares, through Nachbar Services.

According to the agreement signed with the IMF, "Oltchim" is one of the eight companies which the state intends to privatize this year.

Russian giant "Gazprom", through "TISE", expressed its interest in buying the majority stake of OLT, in a letter submitted to the Ministry of the Economy in November 2011.

According to some market sources "Forte" of the United Arab Emirates and "Rompet Rogas" are interested in the shares of OLT.

Azeri company "SOCAR" also expressed its interest in acquiring "Oltchim" in 2009.

• OLT stock rises 6.28%

Even though the announcement concerning the privatization of "Oltchim" was made public by the OPSPI towards the end of the trading session, trading in OLT was not suspended, and the Bucharest Stock Exchange did not publish any communiqué on the matter.

The shares of OLT yesterday ended the session up 6.28% over the previous day, to 1.27 lei/share.

• The government is in a hurry to get rid of "Oltchim"

Two days after the European Commission approved the conversion of the debt of "Oltchim" towards the AVAS into shares, claiming that it did not represent a state aid, the authorities have started working towards speeding up the privatization.

In order to avoid the blocking of the share capital increase, by the shareholders of "Oltchim", on March 9th, the government initiated a draft law, through which the conversion of the debt into stock will be done by law, and shareholders will only be allowed to participate in the share capital increase. In other words, they will not have the right to vote on the share capital increase or not.

"The share capital increase of the company (ed. note: Oltchim) with the amount of the receivables will take place by law on the date of publication of the Official Gazette Part IV of the order of the head of the public institution involved", according to the draft emergency ordinance.

In order for the debt to equity conversion to be approved, 75% of the shareholders of Oltchim need to vote in favor on the first instance of the General Shareholder Meeting of 75% of the shareholders of "Oltchim".

A significant number of lawyers are disputing the method used by the Government, as they say that the draft law violates the Law of Companies, as well as the Law of the Capital Market, as the company is listed on the Bucharest Stock Exchange.

Lawyer Gheorghe Piperea considers that, even though the initiative of the government goes against the law of companies, there is the possibility of a derogation through emergency ordinances, which would harm the minority shareholders.

He said that the CNVM should be very cautious when approving the draft law, because such a procedure could cause major swings of the major stock market fluctuations.

"In order to avoid dilution, the minority shareholders need to participate in the share capital increase, with almost 30% in cash, within 30 days", he said, and he went on to say: "If the government thinks that it will be able to privatize the company faster by posting this method, it is dead wrong, because the minority shareholders will file lawsuits to protect their interests".

According to the draft law of the government, five days after the publication in the Official Gazette of the decision concerning the conversion of the plant's debt into stock, the management of "Oltchim" must summon the shareholders.

The meeting of the shareholders will take place within ten days from the publication of the decision in the Official Gazette, to make a decision "on the rights of preemption granted to existing shareholders".

Gheorghe Piperea considers that the minority shareholders would have been better off if they had opted for the opening of the insolvency proceedings of "Oltchim".

He said that "Oltchim" is flawed, a stock market "zombie", with the price rising even though the company is buried in debt.

The debt of "Oltchim" towards the AVAS amounts to 125 million Euros, excluding interest.

In 2002, the AVAS took over from the Ministry of Finance a receivable of 508.6 million lei, originating from the fulfillment of the guarantees issued by the state for the foreign loans taken on by the company.

In July 2009, Romania notified the European authorities about two support measures in favor of "Oltchim".

The first measure involves a conversion of the public debt amounting to approximately 135 million Euros into stock. The second was a state guarantee which covered 80% of a commercial loan worth 424 million Euros, which will be used for the modernization of the company and for subsequent investments.

"Oltchim" currently has 1.55 billion lei in short term debt and 986 million lei in long term debt.

Part of that debt is owed to "Electrica", which terminated its contract with "Oltchim" in the beginning of this year, as the provision of electricity was taken over by "Electrica Furnizare".

Sources from "Electrica" told us that the total debt of "Oltchim" amounts to 660 million lei (150 million Euros) and so far, the plant of did not pay the overdue amounts, meaning that it failed to honor the payment rescheduling. Also, in order to recoup their loss, the representatives of "Electrica" have asked the Ministry of the Economy to assign the receivable in four equal tranches.

"Oltchim" reported a loss of 270 million lei in 2011, up 20.9% over 2010, even though its turnover rose 17.1%, to 1.53 billion lei.

The company has a share capital of 34.2 million lei, divided into 343.2 million shares, with a face value of 0.1 lei.