Tuesday, October 2, 2012

FT: Romania: another controversial sell-off

Privatisations in Romania have acquired something of a reputation for controversy and confusion. The latest, the urgent sale of chemicals maker Oltchim, has all the hallmarks: a loss-making state enterprise, international pressure for a rapid deal, a controversial tycoon (pictured), maladroit government handling of the case, and now serious doubts about the company’s future.

As of early Monday, Oltchim’s fate hung in the balance.

The firm, €700m in the red, is being sold off as part of a package of privatisations proposed by the IMF, which is supporting the Romanian economy.

On September 21, journalist-turned media magnate Dan Diaconescu won the auction for the government’s 54.8 per cent stake in Oltchim, one of South East Europe’s biggest chemicals manufacturers. The dashing Diaconescu – owner of the television station OTV – bid an eyebrow-raising 203m lei (around€45m). This trumped the other offers from bidders with manufacturing backgrounds – German chemical company PCC SE, already a minority shareholder, and Romanian industrialist Stefan Vuza.

For many in Romania, Diaconescu’s lack of industrial experience, and his political ambitions, made his bid intriguing. The story took a dramatic twist when, days after the auction, prime minister Victor Ponta declared that Diaconescu did not have the money to pay for Oltchim.

If Diaconescu could not deliver, the tender would have to be re-opened in a few months’ time – during which the state would almost certainly have to extend an emergency loan to the troubled company, which stopped production in August due to the weight of its debts and is currently the subject of industrial action by its workers.

Diaconescu has until the end of Monday, Bucharest time, to stump up the money; the assumption in Romania is that he will be unable to do so unless he has a big foreign investor backing him.

Writing in the local press, Romania-based business consultant Ronnie Smith suggests that Diaconescu’s bid was poorly planned, with little due diligence into Oltchim’s debt; or that he had been let down by a foreign co-investor; or that his bid was simply “a piece of political theatre ”.

General elections are due in December, and the tycoon’s People’s Party – Dan Diaconescu (PPDD) will be looking for its first foothold in parliament – probably opposing Ponta’s social-liberal coalition.

However, speaking to beyondbrics on Friday, Diaconescu robustly defended his bid, lambasted the government and refused to go down without a fight, suggesting he could bring in a major investor as a partner.

“The prime minister is against me personally and against my bid,” he said. “I’ve been threatened with prison, which isn’t normal from the head of government of an EU country. I cannot believe that this is happening in the EU. Our price was calculated on what is necessary for Oltchim. Our plan is to attract a major player, and we have had discussions – though I’m not in a position to reveal with whom. You will be very, very impressed with our next steps.”

Diaconescu attacked previous privatisations (which have indeed been dogged with incompetence and allegations of corruption for two decades) and argued that the Oltchim deal should mark a change in the way things are done: “Everything was sold off for a couple of bucks for so many years. Privatisation shouldn’t just be about money, there are real social issues – but all the government says is ‘show me the money’”.

Diaconescu may be able to spring the spectacular surprise he hints at. But the consensus is that, with the government against him and Oltchim’s problems now starkly apparent, his bid will fall.

Meanwhile, further damage has been done to the reputation Romania’s privatisation programme, which is intended to raise much-needed funds for the cash-strapped country, ease the burden of loss-making firms on the state – and hopefully attract some FDI in key sectors, to boot.

“There are all details of an exotic privatisation process for Oltchim as the media and government official statements show,” says Mihai Caruntu, head of the equity research department at BCR, Romania’s biggest bank. He argues:


A failure of the privatisation would not be a disaster in the current circumstances. However, it means collateral damage for the company’s financial position and question marks about the future of a few state-owned companies with quite difficult financial statuses. Oltchim’s privatisation is just one of the key challenges for the Romanian authorities which cannot be postponed any further after the elections in December: finding sustainable solutions for strategic loss-making state-owned companies like the national rail freight company CFR Marfa, the national airline operator Tarom or the national postal services company Posta Romana. The ambiguous privatisation process of Oltchim draws attention to the possibility that the coming major privatisations agreed with IMF& EU might be delicate to manage.

In others words investors interested in companies such as airline Tarom and rail freight company CFR Marfa should study carefully the example of Oltchim.



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