Liepajas metalurgs looks for state bailout

RIGA - The financially troubled Latvian metallurgical company Liepajas metalurgs on April 15 resumed primary production at its plant, which was halted on April 11, said company spokeswoman Saimona Laiveniece, reports LETA. Although Liepajas metalurgs has resumed production, its future remains unclear.
The firm could be running at 30 percent capacity during April, Liepajas metalurgs CEO Valerijs Terentjevs said to reporters after a meeting with Liepaja City Council members last week.

According to an Ernst & Young audit report, the company is on the verge of insolvency. Depending on various circumstances, Liepajas metalurgs will be short of 96.1 million lats (137.2 million euros) at the end of 2013, says the report.

Production volume was planned at 40,000-45,000 tons in April. The most optimistic scenario envisaged is 75,000 tons. However, it seems that the company will only be able to produce around 30,000 tons this month, said Terentjevs in an interview with the LNT morning show ‘900 sekundes’ on April 15.
Liepajas metalurgs’ operations are in trouble due to insufficient current assets. The company is currently working on the optimization of production and administration costs and reviewing the work schedule. Approximately 150 out of 2,300 workers could be laid off, along with salary cuts being introduced.

The metal-working firm hopes to attract investors, and its situation is desperate. Any investment will have to be made immediately, and not after a half-year or a year, said Terentjevs. The company is also looking for a government bailout.

Shareholders in disagreement
The largest shareholders, Sergejs Zaharjins and Ilja Segals, must invest their own money in the company, shareholder Kirovs Lipmans, who is currently involved in a civil dispute over ownership rights to 11.5 percent of Liepajas metalurgs shares, emphasized in an interview with Nozare.lv. “They have enough money - it should be them who invest and save the company. It is awful that Liepajas metalurgs has been brought to such a condition; however, it has been done deliberately,” emphasizes Lipmans.

Asked whether it is possible to attract funds to Liepajas metalurgs by putting up the company’s shares as security in a bank, Lipmans explains that no one “needs these shares,” therefore it is necessary to invest personal funds.
Lipmans emphasizes that he is ready to invest his own funds in the company and lead the company out of the crisis if he regains control over the company. “I do not have to look for investors, I can rescue the company on my own, I have already done it once,” he said.

Liepajas metalurgs paid up share capital is 16,981,033 lats. Zaharjins and Segals are the company’s largest shareholders with 49 percent and 21.03 percent of shares, respectively. Lipmans owns 20.14 percent.
As the financially-troubled company will not be able to make its loan payment to the Italian bank UniCredit this month, the State Treasury has decided to make it for the company. State Treasury press secretary Eva Dzelme said that the payment will be made in accordance with contractual terms. Terentjevs had announced on April 11 that the company will not be able to cover its loan payment, in the amount of 5,468,130 lats.

Coalition representatives are skeptical about the chances of investing state funds to bail out Liepajas metalurgs, and are calling on the company’s shareholders to invest their own funds.

Possible fraud
Polish journalists have already uncovered possible fraud at the company, the TV3 broadcast ‘Neka personiga’ (‘Nothing Personal’) reported. The Polish journalists have concluded that steel prices, on its way from Liepajas metalurgs to Poland, have become cheaper. This could be done through a network of related companies, with internal pricing between Liepajas metalurgs and its subsidiaries sending all of the profits to the subsidiaries, leaving the mother company on the road to insolvency, at least on paper, as some have suggested.

This is also one of the scams that Bertolt Flick’s airBaltic was using before it was taken over by the state.
Nevertheless, the politicians allow the possibility of state assistance in attracting a new investor.
Reform Party Saeima Group Chairman Vjaceslavs Dombrovskis said in an interview with LETA that the main question is whether the company is capable of surviving and whether the current shareholders are ready to invest in it. According to the media, the largest shareholder was making 1 million lats from Liepajas metalurgs each year. He should invest his own funds to solve the current situation at the company, sending a positive signal to potential investors, says the politician.

Dombrovskis also says that it is necessary to convince UniCredit about restructuring the loan.
Unity Saeima Group Chairman Dzintars Zakis believes that the main task for the company’s shareholders is to ensure that Liepajas metalurgs regains its operating capacity. Zakis points out that the company’s shareholders are wealthy and have made their wealth, to a great extent, off the company. Therefore they must participate in putting the company in order.

Independent MP Klavs Olsteins says that the state should help the company find an investor. However, if the state does not manage to do so, it does not mean that the state should invest its funds, adds Olsteins.

Company blames conspiracy
The critical and negative statements about Liepajas metalurgs in the past several months are part of a purposeful campaign that is most probably funded by someone, the company says in a statement released on April 9. “Videos about the company that make unverified allegations, which border on violating laws on business protection, should be considered a mud-slinging campaign intended to discredit Liepajas metalurgs,” reads the statement.
“It finally has to be said without bias that the metallurgical industry in the European Union, and the construction business that is closely associated with the industry, are in deep crisis. This is undeniable. A fact that proves this is the European Parliament’s decision to task the European Commission with offering a strategy for saving the industry by June this year,” says the statement.

The statement goes on to say that Liepajas metalurgs hopes that the Cabinet of Ministers will find a way to support the company which is experiencing temporary problems, as well as the company’s staff of 2,300 and another 15,000 workers in related companies. Thanks to them, the company’s annual turnover is 430 million euros, the company exports 98 percent of its products, and it paid 9.4 million lats in taxes in 2012.
“The state does not disassociate itself from Liepajas metalurgs’ problems; however, it will not purchase the company’s shares and will not become its shareholder,” Finance Minister Andris Vilks (Unity) said in an interview on the Latvian Radio program ‘Krustpunkta’ in early April.

“However, the state also expects signals from the company’s shareholders and it is difficult to help if there is such antagonism among them. It is sad that the shareholders - wealthy individuals - cannot or do not want to invest in saving the company,” added the minister.

Liepajas metalurgs must be rescued by a shareholders’ meeting, not a government meeting, taking into account that it is necessary to increase the company’s capital, Economy Minister Daniels Pavluts said late last month.
“A private company, like Liepajas metalurgs, must primarily be rescued by shareholders, not the government. Shareholders must be prepared to pump their capital into the company or attract other investors. If we do not see such things taking place, then the government must itself be very careful. The company’s shareholders must act, instead of delaying and leaving all the responsibility to the state,” Pavluts believes.