No easy solution to Elektrim troubles

A group of shareholders in troubled telecom and energy firm Elektrim hope to devise a plan by next month to save the company from bankruptcy. Analysts, however, disagree on whether the group could gain widespread support in its efforts to spare Elektrim from bankruptcy after it defaulted on non-secured bonds worth e 480 million ($427.2 million) last December. The shareholders, led by BRE Bank and private investor Ryszard Opara, called for an extraordinary shareholders meeting Feb. 15 to replace Elektrim's supervisory board members and subsequently formulate a plan to rescue the company from bankruptcy. The action came after an angry coalition of bondholders filed a court petition requesting that Elektrim be declared bankrupt so they could receive payment. The court's opening session was Jan. 7; proceedings resume Wednesday when Waldemar Siwak, Elektrim's chief executive officer, is slated to address the court. Elektrim's management has proposed a restructuring plan in which 40% of its debt would be written off and a three-year period would be granted for repaying the remaining portion. Bondholders, however, are demanding full repayment. They asked the Warsaw court last Monday to appoint an auditor to valuate Elektrim's assets, which the company said were worth zł. 3.5 billion ($886.1 million). BRE Bank and Opara suggested a few options for paying off Elektrim's debt after a new board was in place, including the sale of the company's stake in mobile operator Polska Telefonia Cyfrowa (PTC). Opara said the BRE-led group would try to sign an agreement with bondholders to give Elektrim time to pay back the full amount owed, according to Reuters. While the anti-bankruptcy set holds enough sway to call the supervisory board together - BRE Bank holds more than 5% of Elektrim's shares and Opara is reported to have a 6% stake in the company - it is not clear whether the rest of Elektrim's shareholders would back the group's plans. The BRE-led coalition, which includes other allies, collectively holds 20% of Elektrim's shares. The Securities and Stock Exchange Commission (KPWiG) last week called into question BRE Bank's efforts to build its stake in Elektrim. The commission is investigating whether the bank and its allies complied with disclosure requirements. It was not immediately clear how the probe would affect proceedings. "There is no easy solution for Elektrim in terms of restructuring," said Grzegorz Zawada, a banking analyst at Erste Securities in Warsaw. "The present situation with financing is severe because the assets are difficult to sell." Zawada said he was doubtful that the BRE alliance would receive support from other Elektrim shareholders since "the situation at (Elektrim) has been mounting for years and none of the former shareholders were willing to do anything about it." He also noted that Elektrim's 49% stake in its telecom subsidiary, Elektrim Telekomunikacja (ET), which controls PTC, could only be sold if its co-owner, Vivendi Universal of France, exercised its right of first refusal to purchase the stake. Elektrim also has to contend with a temporary restriction placed on the sale of ET since it is the subject of an international arbitration case between Elektrim and Germany's Deutsche Telekom, Zawada noted. Erste Securities values ET at zł. 2.8 billion ($798.9 million). Włodzimierz Giller, a telecoms analyst at Erste Securities, suggested that Elektrim could sell some of its other assets, specifically its construction holdings. He said the company is unlikely to sell power-generation group Pątnów-Adamów-Konin (PAK), which he values at zł. 767 million ($194.2 million), since the company cannot be sold until 2008 under a privatization agreement with the state treasury. Bob Creamer, a telecoms analyst at Raiffeisen Zentralbank Österreich Group (RZB) in Warsaw, said the BRE-led group would likely receive backing from other shareholders. "The problem was that the old shareholders were not able to agree first because Vivendi's representative on the board could not agree with the others, and second, because the other representatives couldn't agree among themselves" because they were all looking out for their own interests, he said. "BRE will actually get those investors to agree." The international arbitration court's temporary restriction on selling ET is not strong enough to block the sale of Elektrim's stake in its telecom subsidiary, Creamer said, adding that Elektrim is more likely to sell the unit than be declared bankrupt if shareholders offered a bid high enough to draw a good price but low enough for Vivendi to be forced to accept it. Vivendi last week said it would do "everything possible" to protect its interests in Poland, Reuters reported. A spokesman for Vivendi said, "We have a right of first refusal on the 49% of Telekommunikacja that we do not hold." In addition, Wojciech Kostrzewa, the president of BRE Bank, told Reuters last week that he did not exclude the possibility of his bank providing Elektrim with financing to pay its disgruntled bondholders. But Creamer said the chances of BRE issuing a credit to Elektrim are small because the 20% stake that the BRE-led alliance controls, worth about $35 million-$40 million, is not enough for the group to risk putting up the capital for the debt that needs to be restructured. Kostrzewa was not available for comments and did not respond to an e-mail inquiry.