Insolvent IT company leaves stock exchange

TALLINN - The only Internet related company listed on any of the Baltic stock exchanges, XXL.EE, has become insolvent and is to be delisted.

Stock exchange regulations stipulate the total market value of a listed company's shares should be at least 10 million kroons ($ 600,000), but XXL.EE has a negative equity of 3 million kroons.

" XXL.EE is insolvent and will go bankrupt," said Arho Anttila, chief executive of XXL.EE, ahead of the Feb. 23 delisting.

Soon after its foundation in 1990, the company, then known as Pennu Computer Technology, was the second largest assembler of PCs in the Baltics. With its well-known brand name XXL Digital, it also became a leading e-business consultancy. But it later hit financial difficulties.

Anttila attributed its failure to the downturn in the global high technology sector and to the poor management of its former majority shareholder, Alo Koop.

"The company is now taking a wait-and-see position," he said.

"XXL's subsidiaries in Latvia and Lithuania and XXL Arisusteemid (XXL Business Systems) are independent from XXL.EE and will continue, only the structure of ownership should change."

In the first nine months of 2001 the company made a 4.7 million kroon loss on a 5.1 million kroon turnover.

At the end of that period it had accumulated total losses of 43 million kroons and its liabilities were over 20 million kroons.

The company now owes over 8 million kroons to Nordea Bank and 2 million kroons to the tax revenue service, said Anttila.

He attributed the failure of the company's efforts to find new investors to an ongoing dispute with the tax authorities over an alleged export fraud in 1998.

"XXL.EE is not planning to look for additional funding since the situation with the tax authorities is unclear and the risks caused by this possible loss would be too huge," said Anttila.

Rescuing XXL.EE is impossible, commented Allan Martinson, chairman of the biggest IT company in the Baltics, Microlink.

"XXL.EE has inherited huge problems from the past. It would be easier to establish a new company than boost the old," said Martinson.

The company's decline began as soon as it appeared on the stock exchange in 1996 and started offering beautified balance sheets to its shareholders, said Aivo Kangus, capital market strategist at Eesti Uhispank.

"Although the company has gone through a lot of restructuring, it lacks a clear concept of where to receive a positive cash flow.

"History shows that if they find additional funding they will spend this in half a year and the owners' equity will turn negative again," he said.

The company gained new strategic owners and management in late 1998, and was turned from a hardware company into a Web service company in less than two years.

It acquired Web agencies in Estonia, Latvia and Lithuania and started a portal business in 1999. The Estonian portal operations were sold to the Finnish-based Aktivist Network in 2000.

The company has 171 shareholders, 56 percent of whom are the clients of Nordea Bank. About one third of the shares belong to two former employees of Cresco Baltic Investments, Pennu Computer Technology's former partner.