VSŽ General Director Gabriel Eichler is asking VÚB to co-operate.photo: TASR
Steel-maker VSŽ is trying to enforce a minimum two month "stand-still" agreement which would prevent its creditors from trying to collect funds from the struggling company. But until its largest creditor, VÚB (Vseobecna Úverova Banka) signs the document, the agreement will not be valid.
The Slovak government has offered to help VSŽ - but not without a price. In order to lean on state-owned VÚB to sign the agreement, the Košice-based steel giant would have to allow government participation as it moves to select a strategic investor as well as allow government representatives to sit and have power in VSŽ decision-making bodies.
According to Finance Minister Brigita Schmögnerová, the government wants to express its interests as the most significant domestic creditor of VSŽ through this special "stabilization" agreement between the government and the group of VSŽ's creditor banks. It feels its claims would be guaranteed by the additional rights of representation. In addition, if VSŽ agrees to sign the government stabilization agreement, the government will make VÚB join the signatories of the stand-still agreement.
In her words, the state registers over 1 billion crowns in due taxes from the VSŽ secured by collateral. Another claim of 1.1 billion crowns originated based on a VSŽ request for deferral of taxes, chiefly VAT and income tax, for the first months of this year. In addition to this, the state registers 400 million crowns in claims towards VSŽ through Konsolidačná Banka and it indirectly controls a stake in VSŽ (through Slovenska Sporitelňa). Slovenská Sporitelňa acquired about 26 percent of VSŽ shares through a repo deal. VÚB said it supports the government's entry into the process. Regarding overdue tax payments from VSŽ, the bank said it is natural that the government decided to enter the process of negotiating between VSŽ and its creditors, VÚB spokesman Norbert Lazar said.
"Thus the state wants to influence sale of VSŽ and secure the of claims of VÚB, Slovenská Sporitelňa and Konsolidačna Banka in VSŽ through an agreement between the government and foreign banks," Lazar said.
The management of VSŽ now has to hurry up and strengthen the firm. According to the stand-still agreement, the company has at least two, but up to four months to get itself together free from the demands of creditors. In that time, it hopes to prepare a five-year business plan, a plan for the restructuring of its debts, and a plan for acquiring a strategic foreign investor.
In early November 1998, VSŽ representatives admitted that growing problems in the global metallurgical industry have had an effect on VSŽ Holding, and they said they expect to end the year with a loss because of these negative developments. They also stressed the need to focus their investments exclusively on metallurgy, to restructure the company completely, including the reduction of its labour force, and to give up its stakes in financial institutions.
The company was also facing problems paying off a syndicated loan of $35 million (almost 1.3 billion crowns) arranged by Merrill Lynch. Merrill Lynch used its right to demand the repayment of the loan after three years which added to the other accumulated problems of the Slovak steel giant. This decision was associated with a general trend of large international banks to reduce credit exposure on emerging markets. Thus the steel-maker found itself near cross-default last November.
