Banks exposed as shipyard sinks

Poland's ailing Szczecin Shipyard last week said it would launch bankruptcy proceedings after a government-sponsored rescue effort failed. The government had wanted a consortium of banks, which lent the yard zł. 1.4 billion zlotys ($350 million), to write off up to 80% of their loans. But the banks refused, saying they could not do so without a viable restructuring plan. "There was no way we could continue operations in the present form," the yard's new chief executive Zbigniew Karkota told thousands of disgruntled workers gathered before its headquarters. "The inability to agree on financial terms with the banks meant we had no option but to file for bankruptcy." Economy Minister Jacek Piechota, who came to Szczecin for last-ditch efforts to save the yard, told angry workers that a company may be carved out of the collapsed yard's assets to continue operations and rehire at least part of its 6,000-strong workforce. "There is a possiblity to start production from a company that would be taken over by the state treasury - a firm that doesn't have zł. 2 billion ($500 million) in debts," Piechota said. The government said it would renationalize the shipyard - the world's 11th largest ship producer - but that plan foundered after an audit revealed the yard's indebtedness was much higher than previously thought.

Pekao held the key Banks were asked to forgive debts worth zł. 1.1 billion ($275 million), but several, including top-listed lender Bank Pekao, said they could not do so without a viable restructuring plan for the northern yard. Pekao's stock slid through the week on worries of exposure to the failing shipyard. Four of seven banks that had jointly lent the shipyard zł. 1.4 billion initially agreed to cancel 80% of their loans, with Pekao one of the holdouts. Pekao has an estimated zł. 600 million ($150 million) loan exposure to the yard, whose collapse or costly rescue could knock profits lower across Poland's largely foreign-owned banking sector. Pekao said that losses stemming from its loan exposure to the ailing Szczecin shipyard should not exceed zł. 150 million ($37.5 million) this year. Pekao, controlled by Unicredito Italiano, did not say what its loan exposure to Szczecin was.

The banks are not direct shareholders of the shipyard but hold a large part of the shares as collateral under loans and are in a position to block any takeover attempt. "Either we take over the yard and enable it to continue operations or we let the banks worry about the money they have already poured into the company," said Treasury Minister Wiesław Kaczmarek. The yard has been idle since early March, and published reports say a combination of poor management and sloppy auditing meant the current ship-building program could only be completed if creditors accept a loss of not less than $220 million. As expected, Poland's state-owned savings giant Powszechna Kasa Oszczędności Bank Polski (PKO BP), the leader of the loan consortium, quickly agreed to forgive the yard's loans, but private lenders are more cautious. Still, on condition that others back the deal, BPH-PBK, owned by HVB Group, BIG Bank Gdański and BRE Bank agreed to the write-off. Analysts said Pekao may prefer Szczecin to collapse since its loans are well secured against ships nearly completed. Other banks are less well guaranteed and may push on for a deal rather than start bankruptcy action. ING Bank Śląski and Germany's WestDeutsche Landesbank, which reportedly played minor roles in the consortium, declined to comment on their decisions. "The situation is not rosy and will probably affect the sector's earnings," said Andrzej Nowaczek, a banking analyst at CSFB in London. "People had expected the state to help the shipyard and now it appears they are washing their hands of it. The worry is that there might be more such problems in the economy that we are not yet aware of." Poland's banking sector - whose index has risen 60% over the last eight months - last faced such a challenge when private Bank Staropolski collapsed in 2000, forcing banks to create provisions of zł. 480 million ($120 million). - Reuters