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Control of VSŽ slips further from Rezeš into government hands

Still wary of the potential for collapse at the Košice metallurgic giant VSŽ Holding and the social and financial chaos that would result, the state took intrepid measures to gain greater control of the reeling company's future.
On January 12, the state-owned savings bank Slovenská sporiteľňa (SLSP) acquired more than 1.6 million shares, representing just over 10% of all VSŽ Holding stock, thus giving the state control of more than a quarter of the company.
The shares were withdrawn from an account of the company Eurotrade, a firm controlled by former VSŽ President Alexander Rezeš. Eurotrade had failed to repay money it owed to SLSP, and SLSP claimed its debt in the form of Eurotrade's shares in VSŽ.

Still wary of the potential for collapse at the Košice metallurgic giant VSŽ Holding and the social and financial chaos that would result, the state took intrepid measures to gain greater control of the reeling company's future.

On January 12, the state-owned savings bank Slovenská sporiteľňa (SLSP) acquired more than 1.6 million shares, representing just over 10% of all VSŽ Holding stock, thus giving the state control of more than a quarter of the company.

The shares were withdrawn from an account of the company Eurotrade, a firm controlled by former VSŽ President Alexander Rezeš. Eurotrade had failed to repay money it owed to SLSP, and SLSP claimed its debt in the form of Eurotrade's shares in VSŽ.

The new owner of the package, SLSP - which is 91% owned by state through the National Property Fund (FNM) - increased its stake in VSŽ from 3% to 13%, after it used the right of lien against VSŽ. The state now controls over 25% of VSŽ Holding: 13% through SLSP, 9.3% through Priemyselná banka, and 2.9% through Reštitučný investiný fond.

"The transfer has strengthened the state's position in the company to a large extent, but Rezeš doesn't surrender easily," said Martin Kabát, an analyst with Slávia Capital brokers. Among the powerful posts Rezeš has held in recent years are election campaign manager for the former governing party HZDS, and Minister of Transportation, Post and Telecommunications.

According to the daily Pravda, the transfer means that Rezeš's influence on VSŽ has dropped to 30.2%, through the following five companies: Všeobecná (10.7%), Hutník (10.2%), Ferrimex (3.8%), Manager (3.8%), and ARDS (1.5%).

The transfer itself was executed hours after Marián Sásik, general secretary of the Bratislava Stock exchange, decided to remove the December 1 block that was placed on VSŽ shares. This was confirmed by Jozef Marko, the VSŽ spokesman. "The stock sale was carried out at the request of shareholders and current VSŽ management won't comment on it."

Although Stanislav Križan, SLSP marketing director, said one day after the transfer that he did not know anything about the "alleged purchase," Peter Huňor, vice chairman of the FNM executive committee and a member of the VSŽ Holding supervisory board, indirectly confirmed it.

"I was told that the trade was done," Huňor told the state news agency TASR and added that acquiring the stocks doesn't represent a change in the agreements between banks and shareholders, and will not be reflected in changes in the company's executives nor in trade policy.

"That's more than probable," Kabát concurred, but he added that the change might come when the state decides to sell its stake to a foreign investor. "It's only a question of time," he said.

Kabát further explained that even by the entry of a strategic investor from abroad, the position of other shareholders would most likely not change. "Now everything depends on how the state will treat its stake, but I don't think they'll do it in a way that would affect other shareholders."

The full effect of the January 12 change, however, will be evident at the next company general meeting, which should take place after PricewaterhouseCoopers auditors file their report. The audit has been requested by the American bank Chase Manhattan, which owns 13.6% of VSŽ Holding.

VSŽ's financial problems started on November 9, when the company defaulted on a $35 million syndicated loan arranged by the American bank Merrill Lynch.

Merrill Lynch used its right to demand repayment of the loan after three years, and this added to the Slovak steel giant's other accumulated problems.

Prognosis

VSŽ representatives admitted that growing problems in the global metallurgical industry have had an effect on VSŽ Holding, and they said they expected 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.

Despite these promises, creditor banks requested changes in company management. Prior to the general shareholders meeting on December 4, the entire board of directors resigned and changes were applied to the supervisory board as well.

Among the new members of the VSŽ Board of Directors were Thomas Graham, former president of U.S. Steel, and Gabriel Eichler, formerly of the Bank of America.

A special general shareholders' meeting on December 11 elected Eichler as VSŽ president.

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