Liepajas metalurgs financial position worsens

  • 2013-05-15
  • From wire reports

BAFFLING: Kaspars Abolins says the company’s money transfers were against authorities’ objections.

RIGA - The Liepajas metalurgs shareholder expressions of goodwill to cooperate with the Latvian government in order to rescue the company from bankruptcy has been shown to be hollow by their recent activities; therefore, the replacement of management and changing the company’s course is necessary to continue operations, say the company’s creditors, reports LETA.

In an interview with Latvian State Radio on May 13, State Treasury head Kaspars Abolins said that the creditors’ offer to buy Liepajas metalurgs shares for the symbolic price of 1 lats (1.42 euros) followed several recent cases where the company’s management made decisions and took action that was not in compliance with the auditors, the Finance Ministry, or with the State Treasury.

“Of course, Liepajas metalurgs’ decision to transfer money to just one creditor, ignoring the others, was made in secret and without the auditors or other authorities’ support. When we found out about the company’s move, the so-called creditors’ club proposed to buy the company’s shares for a symbolic price, ensuring that the company will have new management and, possibly, successful operations in the future,” said Abolins.

Liepajas metalurgs in April transferred the 4.6 million euros it owed to the Lithuania-registered company Torlina, whose managers were previously arrested for fraudulent ventures on the metals market, TV3 broadcast ‘Neka Personiga’ (‘Nothing Personal’) reported on May 12.

Abolins told reporters about the money transfer after the government’s meeting on April 23, without revealing the name of the company to which the funds were transferred, although he did emphasize that the government found Liepajas metalurgs criteria for choosing which loans to repay first as “baffling.”

“Well, yes, on April 12 Liepajas metalurgs transferred 4.6 million euros to this Lithuanian company, even though state auditor at the company had objected, and despite objections from the State Treasury and the Finance Ministry. And the main reason for these objections was that the arguments or criteria, according to which Liepajas metalurgs made its payments, were unclear to us, and after making such transfers, the company’s representatives, in fact, offered no explanation. Furthermore, they used reasons that, upon closer scrutiny, were found to be untrue,” said Abolins.
The transfer, however, has been completed and cannot be recovered.

The State Treasury chief again confirmed that the state was not planning to take over the company, only to get back money that it has had to pay to Liepajas metalurgs as a guarantor of these loans. “Besides the 4.3 million lats paid to the Italian bank UniCredit, the state has underwritten more than 50 million lats, but there is still hope that everything will be done so we do not have to invest more and, on the contrary, get back what we have paid for the company,” added Abolins.

Government misses warning signs
The TV3 broadcast notes that since Jan. 22, when Liepajas metalurgs told the Saeima Economic Policy Committee that it was facing bankruptcy, more than 25 million lats has flowed out of the company, and most of this money was transferred to two companies – Lithuania’s Torlina and British registered Stemcor. The broadcast believes that Finance Minister Andris Vilks should take political responsibility for this.

Vilks, however, told the broadcast: “In this particular case, the unacceptable happened. Even with the auditor’s objections and the objections from the State Treasury, the company’s management transferred the money all the same. This should not have happened.”
When asked to comment if any state official could be held responsible for this, Vilks replied: “Well, in this case no, because, under the relevant regulations, the auditor has to supervise the situation, but he or she cannot halt the company’s payments.”

The other person who could be asked to take political responsibility, Economy Minister Daniels Pavluts declined to comment. Liepajas metalurgs shareholders Sergejs Zaharjins and Ilja Segals also offered no comment.
Lithuanian prosecutor general’s office, which is investigating a case involving Torlina and Liepajas metalurgs, says that the case is complicated and has a long history. Information is being exchanged between Lithuania, Latvia and Poland.
“We have not made any public statements, but it does not mean that the State Revenue Service is doing nothing. We monitor large taxpayers, such as Liepajas metalurgs, on a regular basis,” Revenue Service Deputy Director General Inara Petersone told the broadcast.

The broadcast says that neighboring Lithuania is watching the developments at Liepajas metalurgs with growing dismay. Even more so in Poland, where Liepajas metalurgs has many business partners.
‘Neka Personiga’ says it has information that Poland will not stop just at dismay - Liepajas metalurgs has caused losses for a number of Polish companies, and one of them has just decided to sue the Liepaja company.

Shareholders ready to sell
The two largest Liepajas metalurgs shareholders - Zaharjins and Segals - have agreed in principle to sell their shares in the company for 1 lat each to creditors, said financial consulting firm Prudentia spokesman Karlis Krastins. He explained that the discussion on the possible sale of Liepajas metalurgs shares would continue, and that it would also take place with the company’s third shareholder, Kirovs Lipmans. The latter, however, has rejected the offer to sell his shares in the company for a symbolic 1 lats.
Liepajas metalurgs largest creditors are electric utility Latvenergo, Citadele bank, SEB bank, Stemcor and the State Treasury.

Doors still open
On May 9 the board of NASDAQ OMX Riga decided to resume trading in Liepajas metalurgs shares, according to the stock exchange’s announcement, though the observation status that was applied to the company’s shares on April 11 is being maintained.

Observation status is applied if there are circumstances influencing the issuer’s activity which may materially threaten the interests of investors, and in cases when it is important to turn the attention of market participants to a substantial circumstance related to the relevant financial instrument or its issuer.
And though Liepajas metalurgs is back in operation, there is “no comment” for how long. Work stoppages have been the norm at the firm since the beginning of April, primarily due to a lack of liquidity.
Lenders say that a settlement must be made between the shareholders, and that the company should be turned over to the lenders as soon as possible.

The lenders also say that any financial assistance to the company from them is only possible on condition that the company’s current management is replaced with an independent and professional management team that is acceptable to the lenders.

Liepajas metalurgs suffered 10.3 million lats in consolidated losses in 2012, according to its audited consolidated report. In 2011, Liepajas metalurgs posted 3.8 million lats in consolidated profit.
The company’s consolidated net turnover amounted to 321 million lats in 2012, a 45 percent increase on 2011, when the company’s turnover reached 221.6 million lats.

On May 14 the State Police started carrying out searches at the homes and offices of shareholders and management of the company. State Police spokeswoman Sigita Pildava confirmed that several searches were carried out this morning in connection with the investigation of the Liepajas metalurgs criminal case.