Clock ticking for metals group owners

  • 2013-05-29
  • From wire reports

MOUNTING LOSSES: As shareholders debate next move, creditors are moving to take control of the flagging operations.

RIGA - The Liepaja Court decided on May 27 to launch legal protection proceedings for the financially-troubled metallurgical company Liepajas metalurgs, reported LETA. The company must draft and harmonize its legal protection plan by July 26.

Eva Dzelme, representing one of the company’s creditors - the State Treasury - told that Liepajas metalurgs has every right to request legal protection.
Liepajas metalurgs turned to the Liepaja Court seeking legal protection status last Friday.
The legal protection proceedings have no impact on Liepajas metalurgs creditor demands for the company’s shareholders to either sell their shares or invest large amounts of money into the company by May 31. Liepajas metalurgs creditors will wait until May 31 before any further action, said Dzelme.

The company has just reported losses of 10.1 million lats (14.4 million euros) in the first quarter of this year. In the corresponding period in 2012, the company earned 521,688 lats in profit.
Liepajas metalurgs creditors have decided to capitalize approximately one-half of the company’s debt commitments (currently exceeding 125 million lats) and become its shareholders, in a debt-for-equity swap.
The company’s current shareholders will either have to sell their shares to the company’s creditors for 1 lats, or invest 10 million lats each in the company, in which case they will remain shareholders, and alongside the creditors, will continue to support and stabilize the company.

One of the shareholders, Kirovs Lipmans, last week said that he has not yet received official and detailed information on the procedure of the sale of the company’s shares and how he could invest, thus he believes he has not been given the opportunity to rescue the company.

As Lipmans’ attorney Pavels Rebenoks told, even if his client agreed to one or the other demands set by the government’s consultant Prudentia Advisers, he has received no information on the procedure. “We have not received the conditions on how the transfer of money will take place, as well as the technical details of the deal. Thus, my client has not been given the opportunity to act to save the company,” Rebenoks said.
“It is not normal in business for the shareholder of a company to act and make decisions based on just ultimatums made through the media, not knowing why he must do what he has been demanded. This is especially so, taking into account that those who issued the ultimatum have limited knowledge of the metallurgical business,” Lipmans’ attorney points out.

In an interview on radio station Baltkom on May 23, Economy Minister Daniels Pavluts said that the problems at the metallurgical company Liepajas metalurgs could leave an impact on the national budget. He said that he did not wish to comment further on this matter, as this is for the finance minister, but did say that increases in budget spending could influence the progress of future projects.
The economy minister added that the state does not have to back loans for private companies, and when the decision was made to guarantee the loan to Liepajas metalurgs, more should have been done to monitor the company’s daily activities.

Bank of Latvia President Ilmars Rimsevics said previously that if the company is shut down, Latvia’s economic growth will be reduced 0.6-0.7 percent this year. At the beginning of the year, the Bank of Latvia predicted 3.6 percent GDP growth in 2013. The central bank will release its next forecast on Latvia’s economic growth in July.
After a May 21 Cabinet meeting, Pavluts told members of the press that if Liepajas metalurgs shareholders ignore the demands set by the company’s club of lenders, almost all hope will be lost to resume production and the company’s insolvency scenario will be inevitable.

“The government views this as the worst case scenario, which is undesirable for the company, employees, the city of Liepaja, and Latvia as a whole. Furthermore, we are very puzzled at the current hesitation by the shareholders,” Pavluts emphasized.

The current ‘recapitalization’ scenario is that the company’s current debt commitments will be partially restructured and partially capitalized. Creditors are also considering investing new assets into the company; however, this would be only a limited amount and on the basis of specific conditions. Nevertheless, for this to happen, the company’s shareholders must fulfill the preconditions of the company’s creditors.

The government, which is among the creditor group, has been informed of the scenario and has approved to it in principle.