Fate of Kraków steel mill to be decided this week

The bankruptcy of Kraków-based Huta Tadeusza Sendzimira (HTS) hangs in the balance this week as the steel mill's creditors vote on a management plan for the repayment of zł. 750 million ($187 million) in debts. The arrangement proceedings, initiated by HTS last year, have become a stumbling block in the creation of Polish Steel (PHS), the steel conglomerate at the core of the government's steel industry restructuring program. Until HTS' creditors decide whether to accept the management's repayment proposal, PHS cannot legally take possession of the mill's shares. If the proposal is rejected, the creation and potential sale of PHS will be delayed, said Krystian Kozakowski, PHS' vice president in charge of finance. If there is no agreement, the situation will become very complicated, and we will have to convert HTS' liabilities into shares in PHS, Kozakowski said. This will certainly be more costly and more time consuming ... If this takes place, it could set us back at least a month or even two. The debt settlement plan put forward by the management of HTS asked creditors with liabilities exceeding zł. 10,000 to accept repayments in 20 installments over a five-year period and write off 40% of the mill's liabilities. This group of creditors includes Polish State Railways (PKP), coal supplier Jastrzźbska Sp—łka Wźglowa (JSW) and power generator Zakład Energetyczny w Krakowie (ZWK). Smaller creditors to whom the mill owes less than zł. 10,000 would receive payment in six months. HTS has 1,219 creditors.

A similar meeting failed last month when creditors representing 61.21% of HTS liabilities voted in favor of the arrangement, missing the required two-thirds majority required by law. PKP, JSW and fuel conglomerate Polish Oil and Gas (PGNiG) voted in favor of the proposal while telecommunications firm Telekomunikacja Polska (TPSA) voted against it. We managed to get a majority vote in terms of the number of creditors, but we failed to get a capital majority, Gil said. TPSA declined to comment on why it decided to vote against the arrangement. A major factor in the completion of the proposal will be the Industrial Development Agency's (ARP) conversion of zł. 179 million ($44 million) in euro-denominated bonds into government bonds. The euro-denominated bonds, issued on behalf of HTS by U.S. investment bank Merrill Lynch, are controlled by U.K. finance firm Bankers Trustee Company. The board has decided that we are to make no comment on this issue, said Romualda Sażyńska, the ARP's spokeswoman. There may be more information next Thursday. In the first four months of 2001, HTS registered losses of zł. 80 million ($20 million) and a drop in sales of 24%, while the company's total debts owed to private and state creditors exceeded zł. 1.6 billion ($400 million). This is the effect of our loss of market share, which we are unable to regain while the arrangement proceedings continue, said Mieczysław Gil, a spokesman for HTS.