RIGA - In the latest, and ongoing, fiasco to hit the Latvian business community, the government, creditors and shareholders are working to keep Liepajas metalurgs afloat and agree on a workout plan for the company. Amid allegations of corrupt operations, in which the company’s owners had been siphoning off profits through subsidiaries while allowing the parent company to collapse, bankruptcy if assured if agreement, and a workable plan, can’t be reached. As is the usual procedure, it seems, the Latvian government has stepped in to bail out the shareholders of a private company, but with the risk that ultimately, Liepajas metalurgs could end up costing the Latvian taxpayer millions.
One needs to question the structure of a government - and its policy of guaranteeing loans - which is continually faced with such crises, with recent examples including companies such as the failed Parex Bank and airBaltic. In addition, rarely, if ever, are the alleged crimes investigated, with the offenders serving jail time.
Latest reported losses
The financially-troubled metallurgical company suffered 21.7 million lats (31 million euros) in consolidated losses in the first half of 2013, according to the company’s announcement at the NASDAQ OMX Riga stock exchange, reports Nozare.lv. The company’s consolidated net turnover amounted to 97.7 million lats.
In an interview on Latvian Radio on Aug. 22, Prudentia Advisers partner Karlis Krastins, the consulting firm hired by the creditors of the company, said that all three of the company’s shareholders - Sergejs Zaharjins, Ilja Segals and Kirovs Lipmans - must hand over their shares in the company. However, he added that Lipmans will have the opportunity to regain them, if he invests 10 million lats, as he says is his intention, in the company.
The company’s creditors have the same attitude towards all of Liepajas metalurgs shareholders - if any of them wish to retain their shares, they must invest in the company. “Lipmans is the only shareholder who has at least verbally promised to invest, thus the creditors have allowed him to retain his rights to his shares. The creditors do not wish to allow this, however, for the other two shareholders, as they have already exhausted all of their time and opportunities,” Krastins said.
“The shares of all three shareholders will be handed over to a neutral person who will manage them. In regard to the other two shareholders, these ‘bluffers’ have exhausted all their opportunities for any more negotiation with the creditors, thus they must quietly give up their shares and leave,” Krastins said.
“I will not invest 10 million lats until Zaharjins and Segals hand over their shares. I will submit a bank guarantee letter to Prudentia on my intentions to make this investment, and as I understand from them, they are satisfied about this. The money will be transferred to a bank account, but that investment itself will only go through when the other two shareholders hand over their shares in the company,” Lipmans explained.
He added that Prudentia has not given him a specific deadline when he must make the investment or submit the investment guarantee.
Workout plan accepted
Liepajas metalurgs’ legal protection plan was accepted by the Liepaja Court on Aug. 26. It is expected that Haralds Velmers will be the plan’s administrator. The State Treasury, which represents the state as Liepajas metalurgs largest creditor on behalf of the Finance Ministry, will support the company’s legal protection plan, State Treasurer Kaspars Abolins told reporters after the government’s session last week.
According to the plan, the entire amount invested by the state in Liepajas metalurgs will be returned to the state. The plan does not envisage writing off the company’s debt or recapitalizing it, therefore the state, as the company’s creditor, will support it, said Abolins.
The plan does not foresee the state investing additional funds in the company, either, added Abolins, expressing hope that the company’s shareholders would turn over their shares to the state in the near future.
Waiting for shares
Zaharjins and Segals have not yet handed over their shares in the company, and Finance Minister Andris Vilks said that the contracts they are offering are “skewed and unacceptable to the state.”
In an interview on the Latvian Radio program ‘Krustpunkta’ last week, Prime Minister Valdis Dombrovskis said that if the shareholders do not hand over their shares, an insolvency scenario for the company is very likely. The prime minister repeatedly said that there is no direct way the government can revoke the shares of shareholders, but added that the main conditions in the company’s legal protection plan is that the current shareholders relinquish their shares.
“At the moment, the structure of the company’s shareholders and the dispute between them, do not bring much hope that an investor could be found that could resume production,” Dombrovskis said.
The government in July repaid the entire Liepajas metalurgs debt - 67,465,056 euros - to UniCredit S.p.A. in place of the company, as problems became evident.