TALLINN - Galvex, a state-of-the-art steel galvanizing plant in the Muugu port, has filed for bankruptcy after a major creditor refused to restructure the company's outstanding debt.
According to U.S. media reports, Galvex filed the application after failing to make a loan payment to the SPCP Group, a creditor.
On Jan. 24, the Estonian media reported that Russia's Severstal offered $160 million for the troubled galvanization plant. Galvex owes the investment fund SPCP Group LLC roughly 150 million dollars in operating credit and a long-term loan and has run into trouble with repayment, reports said.
Galvex is also claiming that SPCP has sought to appoint a new CEO without board consultation and attempted to wrest control of the company's assets and equity.
Kalev Klaar, CEO of Galvex Estonia, a subsidiary of the U.S.-based corporation, told the Baltic News Service the bankruptcy application would not affect the company's operations and its Muuga facility would continue work as usual. He stressed that bankruptcy protection would give the company time to find alternative financing or for talks with the present creditor.
Galvex, a 3.7 billion kroon production facility that was launched in 2003, represents one of the largest foreign investments in the Estonian economy, and its newest troubles have occurred at a time when the government is trying to cope with another record-breaking investment project, Estonian Railway. (See story on Page 1.)
The company's troubles supposedly began last spring when working capital dried up and loan payments went unpaid. An oversupply of steel and a resulting decline in steel prices forced Galvex to limit production last year, particularly at its Muugu plant.
Daniel Bain, the main owner of Galvex, is reportedly holding talks with the creditor and potential new investors. SPCP has reportedly requested that he be removed and new management and advisers brought in to take over operations. Bain had originally owned 45 percent of Galvex, though he increased his stake to 90 percent in May 2005.
In the meantime, there have been conflicting reports that Severstallat, a Latvia-based subsidiary of a Russian steel producer, has been eyeing Galvex. According to one report in October, Severstallat purchased a 4.2 million euro loan to Galvex and used it to take the company to court and have its assets arrested.
At the same time two investment banks, Goldman Sachs and Deutsche Bank, injected fresh capital into the project and brought in new managers to rescue the company, which is the largest galvanization line in Europe.
Severstallat CFO and board member Robert Dlohi denied the rumors that Severstallat was planning to take over Galvex Estonia, saying the company owed $5 million for raw materials. He said Galvex was worth far more than the sum of the debt and so automatic takeover was out of the question.
"This is not our business. We have had long-term fruitful cooperation with Galvex and after we get back our debt we would like to continue it in some way," Dlohi was quoted as saying in October.
He had declined to comment on the plans of Russia's Severstal, the parent company and Russia's largest metal producer.
As regards to bankruptcy procedures, Klaar said there had been one hearing in New York, and as a result Galvex was allowed to acquire credit for acquiring additional raw material and continuing production.
Klaar said the market situation was considerably more favorable than last summer, and if the company can continue the current level of operations, it will bring positive financial results.
Production at the plant got off the ground in 2003 and reached 344,000 tons in 2004, when the firm earned a profit of 113 million kroons (7.2 million euros). One report this week claimed the company's sales dropped by nearly half in 2005 to $119 million from $235 in 2004.
