Oltchim Celebrates 45th Birthday Rallying On Bucharest Stock Exchange

05.27.2011 ZF English

Germany’s PCC group has bought 3.6% in Oltchim (OLT.RO) for 9.5 million lei (EUR2.3 million) over the last few weeks, contributing to the stock price skyrocketing of the stock price, which is now five times higher than at the beginning of the year. The chemical plant in Ramnicu Valcea, a symbol of the communist industry, has turned 45 on Thursday.

The pressures of the International Monetary Fund to start the privatization of the Oltchim Ramnicu Valcea chemical plant by the end of the year have rekindled the interest of investors on the stock exchange for the company's stock.

Germany's PPC, the main minority shareholder of the plant, is trying to secure a strategic advantage in the future privatization, buying shares from the stock market to consolidate its shareholder position.

The Germans became Oltchim shareholders in 2007 when they bought the Lindsell investment fund managed by US NCH Group out of it.

PCC's relationship with the management of the company, backed by the Economy Ministry, which owns 55%, has been strained over the last three years.

PCC has repeatedly criticized the management and blocked plans to recapitalize the plant either by complaining to the court or to the European Commission, saying Oltchim's entire strategy was wrong.

The Germans have repeatedly said Oltchim was a company with serious problems, pointing at the losses of the last few years and the piling debt.

Looking at Oltchim's financial results of the last few years, the spectacular rise on the Bucharest Stock Exchange seems inexplicable. The company accumulated 667 million lei (over EUR160 million) in losses from 2008 through 2010 and saw its debt rise by about RON720 million to RON2.35 billion (EUR570 million) at the end of March 2011. The book value of its assets no longer covers debt.

The company, however, remains the largest plant in the local chemical industry, with more than RON1.3 billion (EUR305 million) in turnover in 2010 and is also one of the country's biggest exporters.

Oltchim's woes date back to 2007 when the Government had to overturn a capital increase the company had conducted in 2003, whereby about EUR100 million in debt the plant had to the State Assets Resolution Authority had been converted into equity. The Economy Ministry did not allow the minority shareholders at the time, SIF Oltenia and Lindsell, to subscribe in the increase, thus diluting their stakes, so that they went to court and won in 2005.

A long series of lawsuits that ended as late as 2007 prevented the company's privatization, because of the uncertainty surrounding the state's stake. In 2007, the Government decided to cancel the 2003 capital increase and conduct a new one. However, PCC, which had bought into the company already paying EUR7 million to Lindsell, was against a new capital increase that would have forced it to pay several tens of millions of euros to retain its stake. It went to the European Commission claming the capital increase the state had in mind was actually state-aid, and therefore the move was blocked until the completion of the investigation.

Meanwhile, the leu depreciation caused Oltchim's debts (mostly FX-denominated) to increase, leading to financial losses and making it increasingly harder for the company to get loans to continue operations. When the management of the plant reached an agreement with the Government to get state guarantees to be able to borrow, PCC again went and complained about it being state aid.

On top of that came the economic crisis, along with the decline in demand on foreign markets, and the closure of Arpechim, an important raw material supplier of Oltchim, made its problems worse, causing the situation it is in now.

"It was a mistake of the majority shareholder, as a result of unclear legislation. Had minority shareholders been granted preference rights back then, there wouldn't have been any problem, the company would have been capitalized and Oltchim's fate would have been different," said Constantin Roibu, Oltchim's chairman, who has been running the company since 1990.