Time running out for Liepajas Metalurgs

LIEPAJA - Martins Kriekis, representing Latvia’s crippled metallurgical company Liepajas metalurgs shareholder Kirovs Lipmans, calls for security guards to man the company’s assets, furnaces and other production equipment, since “unofficial information has been received from [owner] Sergejs Zaharjins’ team about intentions to cause damage to the company’s property.”

According to Kriekis, Zaharjins has warned that if he is unable to purchase the company’s property at an auction during the insolvency process, it will be irreversibly damaged so that others won’t benefit from it, reports Nozare.lv.
Liepajas metalurgs’ legal protection plan administrator Haralds Velmers says secured creditors have already assigned additional security guards to company property. And, it is not the administrator’s duty to guard the company’s property during the legal protection process. This is done by the company. It is unlikely that someone from the company’s management or employees would be interested in damaging its equipment since the law envisages criminal liability for such actions, added Velmers.

Capitalize the debt
The company has turned to the highest officials suggesting that the company’s debts to the state and state companies in the amount of 78.8 million lats (112.5 million euros) be capitalized. The company wants the state to capitalize the Finance Ministry’s credit claims in the amount of 51.9 million lats, Citadele bank credit claims (12.4 million lats) and Latvenergo credit claims (14.5 million lats).

Liepajas metalurgs also requests support for issuing an additional 78.8 million shares, which would end up owned by the state through capitalizing the company’s debts. As a result, the state would obtain the company’s controlling interest and a chance to recover its investments from dividends and selling the company’s shares. The company in turn, after issuing its shares, would have an opportunity to receive a loan from lending institutions to continue production.
The Finance Ministry, however, says that, from the point of view of the government, Liepajas metalurgs’ request for capitalizing its debt to the state cannot be supported, since such actions would be considered new support for a private company, which cannot be harmonized with the European Commission under any of state support regulations.
The ministry calls on Liepajas metalurgs instead to continue work on implementing the legal protection plan rather than making misleading public announcements in the media.

The value of the company is currently close to one lat and continuing operations are impossible without new investment, Latvenergo board member Uldis Bariss said in an interview on Latvian Radio on Oct. 23. Liepajas metalurgs shareholders must realize that, if they are unable to attract an investor, “they will have nothing to do there,” said Bariss.

State’s risky investment
If the government does not agree to capitalize the company’s debts to the state and state companies and does not obtain the company’s controlling interest, the state will recover santimes on the lats from its investment should it be ruled insolvent, said council chairman Guntis Vilnitis on Oct. 21.
This offer does not envisage any additional investments by the state. The state has already lent this money by repaying the loan owed to the Italian bank UniCredit S.p.A. by Liepajas metalurgs, in the amount of 47,414,711 lats.

But an operating company has the most value. Liepajas metalurgs’ value will be between 20 million lats and 50 million lats in case of insolvency and, taking into account that the country will have to pay severance packages and unemployment benefits, it will only be able to recover 10 percent of its investment, claims Vilnitis.
Debt capitalization is the last chance to restore operations, since it will reduce the company’s debt commitment from 129.1 million lats to 28 million lats, improving the company’s balance. This will create real opportunities for borrowing assets from financial institutions and the company will be able to resume its operations in two weeks’ time, hopes Vilnitis.

Liepajas metalurgs’ announcement that capitalizing the debts is the last chance to restore operations will not solve the current situation; on the contrary, it will allow Liepajas metalurgs’ owners Sergejs Zaharjins and Ilja Segals to continue squandering the company’s assets, believes shareholder Kirovs Lipmans.
Lipmans points out in a statement to the media that debt capitalization can only be considered when the company’s operations are fully restored. If the debts are capitalized now, it will increase the risk that the state and state companies may end up with nothing at all.

As part of the legal protection process, approved by the Liepaja Court, Liepajas metalurgs plans to take measures to increase production and sales volumes, focusing on markets in the vicinity of Latvia that offer better prospects. The legal protection process plan also stipulates more professional market analysis by the company.