Bittersweet Anniversary - While some shipyards have found calm waters, others stuggle to keep afloa
GDYNIA - After cliffhanger battles just to survive early this decade, the giant Stocznia Gdynia shipyard has made it to the market with flying colors. It has both investors and customers.
In the near future, it will distribute $52 million in shares, a final tangible sign of its transition from a state-owned to private company, with the state holding 30% of the shares. It added a second shift July 1 and may add a third by yearend to cut construction time by 40%. Its workforce of 7,100 is nearly 2,000 higher than three years ago.
Not bad for a yard that was about to be sold to the Norwegians for $5 million in the late 1980s, that got no orders at all in 1991 and was ordered closed in 1992, when debts soared beyond $100 million.
The Gdynia saga is a triumph over adversities with management and workers doing all they can to save the shipyard. It also is proof of Stefan Kawalec's savvy in pushing through a tough law in 1993, as deputy finance minister, that forced banks to deal with bad debts but provided innovative tools to salvage indebted companies deemed to have a future.
Gdynia used that law to halve its debts and to swap the remaining debt owed to banks and suppliers for equity in the company. This backdoor privatization route put the shipyard back on its feet, leading to new options to finance the $1.6 billion in orders for ships through 1997.
Gdynia joins the Szczecin shipyard in making U-turns from the state-socialist past to compete in the world shipbuilding market today.
Gdynia is among the dozen most profitable companies in Poland and ranked 16th in worldwide shipbuilding companies in June; Szczecin, which had $450 million in orders for 1995, was the 10th busiest.
Lamentable anniversary
Not all shipyards have made that difficult transition. The Northern Shipyard, which made ships exclusively for the military, is having turnaround difficulties.
The most notable among those still struggling, however, is Stocznia Gdansk, where Solidarity was born in a shipyard confrontation 15 years ago this August, and where a charismatic shipyard electrician, Lech Wa*esa, became the very epitome of the Solidarity movement.
Poland's niche in shipbuilding seems secure. Its workers are highly skilled and experienced, and their wages are less than, say, competitors in the former eastern Germany, let alone those in western Germany. And there is a worldwide demand. Germany is buying container ships at a fast clip, reselling them four to five years later and buying more. There is a scramble to get new double-hulled ships to conform to new U.S. rules aimed at precluding future oil spills.
Burdens of the past
Szczecin formerly had made ships almost exclusively for the Soviet market and got in trouble immediately when the systems switched in 1989-'90. The Soviets had taken delivery of ships but didn't pay for them. It began retooling for civilian production and reorganizing the yard under the civil code.
Gdynia had mostly made ships for western European commercial customers and had five ship orders in 1990 that seemed to make it secure.
But the 1990 cancellation of shipyard subsidies by the Tadeusz Mazowiecki government "created a terrible situation for us, " says sales director Andrzej Buczkowski. The Gdynia shipyard had orders but no way to finance them. The government suggested they renegotiate the contracts.
"We didn't really know the value of anything. We had charged costs plus 20% to the government," Buczkowski says. In 1991, the foreign trade office had brought in no new orders at all. Buczkowski was hired back, after an absence of more than a decade, and declared a "friendly divorce" from the foreign trade agency Centrmor.
Annually, it costs $200-$220 million just to keep the shipyard open; with no new orders and debts soaring, Prime Minister Jan Olszewski threatened to close the yard. It survived, he didn't.
A longtime French customer gave Gdynia new orders and advanced them the operating costs. "They saved us," Buczkowski says. Other orders began to come in. And serious talks began with the banks and suppliers about starting anew by writing off some debts and swapping the rest for equity. That deal was done in 1994 (although the issuance of shares was held up by the Privatization Ministry for nearly a year, until this summer).
Price of politics
Educating investors that Poland was a safe bet was difficult, when the political turmoil kept taking the headlines. Buczkowski recalls final stages of negotiations for ships to western Europe when "risk insurance" abruptly tripled, from 3.5% to 7.5%, after President Wa*esa said he planned to dismiss Parliament. Wa*esa's one sentence cost them millions in higher fees.
The debt agreement still left the shipyard strapped for up-front money for supplies. Here again, reforms with the admirable goal of preventing banks from getting over-extended caused grief for big companies in unexpected ways. The new rules preclude banks from loaning more than 15% of its capital to any one customer. That means the largest Polish bank, Handlowy, could loan Gdynia only $70 million - and that would finance the building of only two or more ships. Yet few companies had contacts with the far wealthier western banks.
Calmer waters
At this point, a Citibank officer paid a courtesy call; they had just opened an office in Gdynia. He soon came back with another officer, then with the president of Citibank Poland, who sealed the first of deals to the shipyard, a loan of $16.4 million. Its London office later made the first Euromarket syndication of loan guarantees for any Polish company and in July syndicated what Citibank called "Gdynia II" of $34 million in loan guarantees for two more vessels. A consortium of six Polish banks, meanwhile, did the same, with a $46 million loan guarantee syndication in July, a first for Polish banks.
The Gdynia yard has orders for 26 ships worth $1.6 billion through 1997, with orders for another 19 possible. Buczkowski projects an average of $350 million to $400 million in orders a year but doesn't rule out handling up to $600 million a year if construction time can be cut to nine from the current 12 months.
In the near future, it will distribute $52 million in shares, a final tangible sign of its transition from a state-owned to private company, with the state holding 30% of the shares. It added a second shift July 1 and may add a third by yearend to cut construction time by 40%. Its workforce of 7,100 is nearly 2,000 higher than three years ago.
Not bad for a yard that was about to be sold to the Norwegians for $5 million in the late 1980s, that got no orders at all in 1991 and was ordered closed in 1992, when debts soared beyond $100 million.
The Gdynia saga is a triumph over adversities with management and workers doing all they can to save the shipyard. It also is proof of Stefan Kawalec's savvy in pushing through a tough law in 1993, as deputy finance minister, that forced banks to deal with bad debts but provided innovative tools to salvage indebted companies deemed to have a future.
Gdynia used that law to halve its debts and to swap the remaining debt owed to banks and suppliers for equity in the company. This backdoor privatization route put the shipyard back on its feet, leading to new options to finance the $1.6 billion in orders for ships through 1997.
Gdynia joins the Szczecin shipyard in making U-turns from the state-socialist past to compete in the world shipbuilding market today.
Gdynia is among the dozen most profitable companies in Poland and ranked 16th in worldwide shipbuilding companies in June; Szczecin, which had $450 million in orders for 1995, was the 10th busiest.
Lamentable anniversary
Not all shipyards have made that difficult transition. The Northern Shipyard, which made ships exclusively for the military, is having turnaround difficulties.
The most notable among those still struggling, however, is Stocznia Gdansk, where Solidarity was born in a shipyard confrontation 15 years ago this August, and where a charismatic shipyard electrician, Lech Wa*esa, became the very epitome of the Solidarity movement.
Poland's niche in shipbuilding seems secure. Its workers are highly skilled and experienced, and their wages are less than, say, competitors in the former eastern Germany, let alone those in western Germany. And there is a worldwide demand. Germany is buying container ships at a fast clip, reselling them four to five years later and buying more. There is a scramble to get new double-hulled ships to conform to new U.S. rules aimed at precluding future oil spills.
Burdens of the past
Szczecin formerly had made ships almost exclusively for the Soviet market and got in trouble immediately when the systems switched in 1989-'90. The Soviets had taken delivery of ships but didn't pay for them. It began retooling for civilian production and reorganizing the yard under the civil code.
Gdynia had mostly made ships for western European commercial customers and had five ship orders in 1990 that seemed to make it secure.
But the 1990 cancellation of shipyard subsidies by the Tadeusz Mazowiecki government "created a terrible situation for us, " says sales director Andrzej Buczkowski. The Gdynia shipyard had orders but no way to finance them. The government suggested they renegotiate the contracts.
"We didn't really know the value of anything. We had charged costs plus 20% to the government," Buczkowski says. In 1991, the foreign trade office had brought in no new orders at all. Buczkowski was hired back, after an absence of more than a decade, and declared a "friendly divorce" from the foreign trade agency Centrmor.
Annually, it costs $200-$220 million just to keep the shipyard open; with no new orders and debts soaring, Prime Minister Jan Olszewski threatened to close the yard. It survived, he didn't.
A longtime French customer gave Gdynia new orders and advanced them the operating costs. "They saved us," Buczkowski says. Other orders began to come in. And serious talks began with the banks and suppliers about starting anew by writing off some debts and swapping the rest for equity. That deal was done in 1994 (although the issuance of shares was held up by the Privatization Ministry for nearly a year, until this summer).
Price of politics
Educating investors that Poland was a safe bet was difficult, when the political turmoil kept taking the headlines. Buczkowski recalls final stages of negotiations for ships to western Europe when "risk insurance" abruptly tripled, from 3.5% to 7.5%, after President Wa*esa said he planned to dismiss Parliament. Wa*esa's one sentence cost them millions in higher fees.
The debt agreement still left the shipyard strapped for up-front money for supplies. Here again, reforms with the admirable goal of preventing banks from getting over-extended caused grief for big companies in unexpected ways. The new rules preclude banks from loaning more than 15% of its capital to any one customer. That means the largest Polish bank, Handlowy, could loan Gdynia only $70 million - and that would finance the building of only two or more ships. Yet few companies had contacts with the far wealthier western banks.
Calmer waters
At this point, a Citibank officer paid a courtesy call; they had just opened an office in Gdynia. He soon came back with another officer, then with the president of Citibank Poland, who sealed the first of deals to the shipyard, a loan of $16.4 million. Its London office later made the first Euromarket syndication of loan guarantees for any Polish company and in July syndicated what Citibank called "Gdynia II" of $34 million in loan guarantees for two more vessels. A consortium of six Polish banks, meanwhile, did the same, with a $46 million loan guarantee syndication in July, a first for Polish banks.
The Gdynia yard has orders for 26 ships worth $1.6 billion through 1997, with orders for another 19 possible. Buczkowski projects an average of $350 million to $400 million in orders a year but doesn't rule out handling up to $600 million a year if construction time can be cut to nine from the current 12 months.
