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INVESTIGATION OF VSŽ SHARE TRANSFER STOPPED, NEW OWNERS PUSH THROUGH PROPOSAL AT SHAREHOLDERS' MEETING

Another dodgy deal swept under the carpet

INVESTIGATORS have decided to halt their inquiry into the sale of shares of the former steelworks Východoslovenské Železiarne (VSŽ). At the same time, current majority shareholder Penta Group has pushed through its proposal to take the VSŽ shares off the stock market.
Jozef Bernát, head of the special prosecutor's office, confirmed for Slovak Television (STV) on July 28 that the investigation had been halted based on the fact that investigators had failed to prove that any crime had occurred related to the transfer of VSŽ shares. However, many remain sceptical that the deal was honest.
"Even after some time has passed, US Steel considers the sale of 21.24 percent of VSŽ shares from the portfolio of the state-owned Transpetrol to be unfair," said US Steel spokesperson Ján Bača to the TASR news agency on July 30.

INVESTIGATORS have decided to halt their inquiry into the sale of shares of the former steelworks Východoslovenské Železiarne (VSŽ). At the same time, current majority shareholder Penta Group has pushed through its proposal to take the VSŽ shares off the stock market.

Jozef Bernát, head of the special prosecutor's office, confirmed for Slovak Television (STV) on July 28 that the investigation had been halted based on the fact that investigators had failed to prove that any crime had occurred related to the transfer of VSŽ shares. However, many remain sceptical that the deal was honest.

"Even after some time has passed, US Steel considers the sale of 21.24 percent of VSŽ shares from the portfolio of the state-owned Transpetrol to be unfair," said US Steel spokesperson Ján Bača to the TASR news agency on July 30.

The main focus of VSŽ had traditionally been steel production. Excessive diversification of the activities of the company, which has made large acquisitions and investments at home and abroad, and overall mismanagement in the late 1990s have left the company deeply indebted.

The financial problems of the steel producer were resolved when VSŽ's steel-making activities were sold off to US Steel in 1999. VSŽ thus ceased to be involved in production and now deals with old obligations and claims of the VSŽ controlling assets, which were not transferred to US Steel.

After the sale, the state held over 35 percent of VSŽ shares. It controlled 16.5 percent through the National Property Fund (FNM) and 21 percent through then state-owned oil transport company Transpetrol.

In December 2001 Transpetrol unexpectedly sold its stake in VSŽ through the stock market. The sale had been in the planning throughout the previous period, but a day before the transfer the then Economy Minister Ľubomír Harach said the time was not ripe for the sale due to a sharp decrease of the share price on the market. Analysts agree the downturn in share value was a result of speculation.

However, Štefan Czucz, head of Transpetrol, said after the transfer that the sale was completed based on the Economy Ministry's decision. The ministry was responsible for exercising the rights of Transpetrol's sole shareholder - the state.

The move came as a surprise to the FNM, which was preparing to coordinate the sale of its shares with Transpetrol. Such a coordinated sale could have led to a higher price per share.

Among those upset over Transpetrol's move was VSŽ itself. VSŽ boss Anton Bidovský said in December 2001 that both the ministry and Transpetrol representatives were aware that VSŽ was interested in buying its own shares back and that his company had offered a price of Sk200 (€4.76) per share, Sk40 (€0.95) more than the price for which shares were eventually sold.

US Steel, at the time a VSŽ shareholder, was another company interested in the purchase. However, negotiations ended in early December 2001, as the government argued the price offered by US Steel was not high enough and said a sale through the open market would be more advantageous.

John Goodish, who was the president of US Steel at the time, warned that the stock market sale was only a cover-up for a privately agreed transaction. Goodish did not hide his disappointment with the government's actions.

"In Slovakia a lot is being said about transparency, but those who talk about it perhaps don't even know what it means," Goodish said at the start of 2002.

Representatives of the US steel maker are still not pleased with the 2001 deal.

"What we said [previously] stands. I don't think we will comment on it any further," said US Steel spokesperson Bača.

In February 2002 the General Prosecutor's office ordered police to launch an investigation into suspicions that persons involved in the transfer abused publicly undisclosed information, since after Harach's statements about the postponement, there was no official announcement that the sale of the VSŽ shares would proceed.

That investigation was first brought to a halt in October 2002, when investigators first declared that no crime had been committed.

In January 2003 the General Prosecutor's office ordered that the case be re-opened. However, that has now also come to an end for the same reasons as the first investigation. An inquiry into the transfer carried out by the Financial Markets Office and the stock market also found no wrongdoing.

The VSŽ shares ended up in the hands of financial speculators Penta Group, J&T, and Istrokapitál. J&T and Istrokapitál later sold their shares to investment company ART Investment, while in October 2002 Penta acquired a further 24.5 percent stake from US Steel and now holds 32 percent.

A shareholders' meeting held on July 23 passed Penta's proposal to withdraw VSŽ shares from the stock market, despite the opposition of the FNM and representatives of small shareholders. Some 80,000 people hold VSŽ shares.

As the largest stockholder Penta now has to make a public offer for the purchase of the other shareholders' shares. The minimum value of the bid calculated based on Slovak legislation may, in this case, be as low as Sk90 (€2.14).

"If Penta's price offer is acceptable, we will most likely sell. If not, we will remain VSŽ shareholders," said FNM spokeswoman Tatjana Lesajová. The funds' attempts to sell its 16.5 percent share through the open market while it was still possible were not given the go-ahead by the government.

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