In a bind. Top management at steel-maker VSŽ say they know nothing about state plans to buy a stake.
On November 9, VSŽ Holding failed to repay a $35 million loan from American investment bank Merrill Lynch. Following the default, accusations of financial mismanagement at VSŽ flew from the lips of cabinet members and stock analysts.
"In [bailing out VSŽ], the government will make use of a significant block [25%] of shares that is collateralized in [state banks] Slovenská Sporiteľňa and Priemyselná Banka," said Dzurinda, speaking at Economic University in Bratislava. Dzurinda explained that VSŽ had offered the shares to the financial institutions as collateral for loans it had drawn.
Jozef Lukáč, an analyst with Capital Partners Consulting, said that the government's intention to regain control over a company producing 25% of Slovak exports was "interesting." "I totally understand the government, because they know that nobody besides the state can get VSŽ out of its troubles," he said.
Slovenská Sporiteľňa, the largest bank in Slovakia with 1997 assets amounting to 180 billion Sk ($5 billion), could become the holder of a quarter stake of VSŽ shares if the company is unable to repay the credits within the set time period.
The state owns a 91% stake in Sporiteľňa, and cabinet could in theory use this power to claim the VSŽ shares if they were forfeit. Following a November 26 general shareholders meeting at Sporiteľňa, bank officials confirmed Dzurinda's plan as one of several possible options facing the bank, but would not reveal the date by which the VSŽ credits should be repaid.
The current VSŽ management has close personal ties to the former HZDS governing party, holds more than 40% of VSŽ shares, but would lose control over the steelmaker if the state became a 25% shareholder.
However, Ján Smerek, a HZDS deputy and chairman of the supervisory board at VSŽ Holding, said he knew nothing about any planned repo transaction involving VSŽ shares.
"As chairman of the supervisory board, I have no information about the distribution of shares or their collateralization when drawing loans in Slovak banks," he said. But Smerek conceded that "if the Premier claimed that the government could acquire some control in VSŽ Holding through Slovenská Sporiteľňa, which will control a 30% stake in VSŽ Holding through a repo transaction, he probably knew what he was talking about."
Smerek would neither confirm nor deny the possibility that Slovenská Sporiteľňa or other financial institutions could gain control of a significant stake in VSŽ. Neither would he say what steps VSŽ might take in order to regain shares from banks in the event of a repo transaction.
On the contrary, Smerek said that the last talks held between VSŽ representatives and its creditor banks had been successful. "The firm is running normally," he said. "Only its financial situation is tense. However, it can be solved and further developments will be decided on by shareholders at an extraordinary meeting on December 11."
VSŽ spokesman Jozef Marko explained that "VSŽ Holding's board of directors convened the [December 11] meeting at the request of a shareholder owning over 10% stake," adding that the meeting would bring changes in the roster of top management.
Lukáč, for his part, said personnel changes would not address VSŽ's real problems. "To me, the change of management is not so important. It is only a pro forma change, which most probably won't solve the critical situation," he said.
According to Marko, VSŽ has already engaged a new, hitherto unnamed, "highly respected and widely experienced" manager, who should play the role of advisor to VSŽ brass. "This renowned specialist will help new management to run the company more effectively," he said, adding that the future advisor would bring experience gained from other steel-making companies, where "he has always been successful."
Following the November 9 default, VSŽ has been negotiating furiously with creditors to buy time. "The results of our negotiations with creditors were very clear - we will not pay off the loan principals, only the interests - which we have been doing in accordance with the set terms," said Pavol Miškov, vice chairman of the board of directors and vice president for financing at VSŽ.
Asked whether creditors might still declare a cross-default, Miškov said that all VSŽ loan contracts also contain clauses on default and cross-default, and concluded that "everything is up to the banks."
Lukáč said that many possible avenues were open to VSŽ creditors, "but one thiing is sure - the banks won't make a fast and incautious decision."