No sign off on French sugar deal
By : Juliet D. Golden
In what has been called an unprecedented move, the Interior Ministry (MSWiA) has refused to sign off on a deal whereby French sugar giant Saint Louis Sucre (SLS) would acquire Poland's largest sugar holding, Slaska Spolka Cukrowa (SSC).
After almost a year of highly contested negotiations, the Treasury Ministry in November sold a 95% share in the sugar holding for zl. 250 million ($61 million). The deal gave SLS an 18% share of Poland's sugar production capacity, the third largest in Europe. Under the agreement, SLS agreed to increase SSC's share capital by zl. 250 million ($60 million) to cover the holding's debt and fork out zl. 155 million ($38 million) over the next five years to restructure and modernize the company's operations.
To finalize that transaction, however, the MSWiA must first grant permission for SLS to acquire the property that is included in the privatization deal for the 16 sugar mills that make up SSC. While a necessary step in any privatization deal, most foreign investors consider the MSWiA's approbation a mere formality.
"Maybe I'm wrong, but I don't know any examples of privatization where this authorization has not been given," said Patrice Saintherant, international development director at SLS. "Everybody thought that this authorization from the Ministry of Interior and Administration was just a formality."
Saintherant said that the ministry declined to sign off on the deal citing formal errors made in SLS's application. In its request, SLS asked for the MSWiA to authorize the purchase of SSC as a whole, rather than for each mill in the holding.
"They aren't refusing (based) on the core of the transaction, but just on the form," Saintherant said. "In fact, we did ask for this authorization in a global way; we signed a contract to buy 95% of the shares of SSC, so we asked for a global authorization. After we asked for this authorization the answer came that we should have asked for an authorization for each sugar factory."
For its part, ministry officials said last week that they were simply enforcing existing law. "I would like to emphasize that the Interior Ministry could not make any decision other than a negative one," said Ireneusz Wilk, director of the MSWiA department that grants permission and concessions. "There were so many procedural errors that could have later invalidated any decision made on this matter."
On the surface, this most recent conflict in the sale of SSC appears to be no more than a bureaucratic misunderstanding between a foreign investor and the ministry. Under the surface, however, the impasse appears to be more about the longstanding tug of war over who ultimately will control Poland's sugar production potential.
For almost two years, the sugar industry has been steeped in conflict over the sector's privatization. For more than a year, trade unions and some Solidarity Election Action (AWS) deputies have lobbied to keep the sugar industry in Polish hands by creating a national sugar company, Polski Cukier, from all unprivatized mills. The government, however, had been courting strategic investors as part of its plan to pump much-needed cash into outdated technology and production facilities.
Just last week, dozens of union leaders and farmers marched on the SSC headquarters near Opole protesting the sell-off to the French.
For Andrzej Budzinski, vice president of the board of Rolimpex, the latest stalemate is more than just a hiccup in the process. "What we know is that (all parts) of the administration are on 'alert' concerning sugar," he said. This means that all parts of the government are ensuring that any and all formal requirements are met before any decision is made on a sugar privatization deal, explained Budzinski.
"Those who sponsor (Polski Cukier) are watching very closely," Budzinski said. "They have their insights into the decision-making processes and they of course want to stop the decisions from being taken."
According to Budzinski, the conflict over the sugar industry places both the government and the country as a whole in a bad light. "I think this is very bad news for anyone investing in Poland," Budzinski said. "It shouldn't be (this way). The decision-making process should be transparent, quick and the formalities shouldn't take ages."
The atmosphere surrounding the sugar privatization process was the main factor leading to Rolimpex and its Danish partner Danisco, one of Europe's leading sugar producers, to pull out of the market earlier this year. The departure brought to a halt Danisco's six-year attempt to put down roots in Poland.
"This is a horrible situation, there is a sickness in that sector that has to be cured," Budzinski said. "We are very much satisfied that we are out of that political climate."
SLS's Saintherant admits that shareholder confidence has been undermined by the recent setbacks.
"The situation is so difficult in Poland at the moment and we face so many difficulties to concluding this transaction that we are actually a bit worried about the future," Saintherant said. "I would not be surprised if SLS shareholders lose confidence in Poland (and) in this investment."
Poland is not SLS's first venture in Eastern Europe. The company also holds shares in Hungarian, Czech, and Slovakian factories.
Saintherant said that SLS will submit a re-jigged request to MSWiA this week. "Our lawyers are working on it at the moment," Saintherant said.
According to Wilk, the approval process could take up to two months. While he is willing to wait it out for the moment, Saintherant said that the grave financial situation of the mills grouped in SSC could mean that any delays could endanger the long-term viability of the company.
With debts of zl. 380 million ($93 million), Saintherant said that any one of SSC's mills could fall into bankruptcy at anytime. Earlier this year, the SSC privatization deal was jeopardized when a Wroclaw court declared the bankruptcy of the holding's largest sugar mill, Maloszyn. By 1999, Maloszyn had racked up debts of close to zl. 34 million ($8.71 million), with 1999 net losses reaching zl. 12 million ($3 million).
"It really is a critical situation from a financial point of view," Saintherant said.
