PHS privatization hitting snags

The privatization of conglomerate Polish Steel (PHS) moved ahead with the company's official registration last week but the Treasury Ministry's plans to sell a 51% stake in PHS to strategic investors are already behind schedule as government officials and management struggle to resolve the company's monstrous debt. A strategic investor for PHS was to be chosen in the first weeks of June, according to earlier government announcements. But the Treasury Ministry is still awaiting the completion of the privatization's feasibility study and a plan to deal with the company's zł. 4 billion ($1 billion) debt. "What we are waiting for is the … feasibility study of the project, a matter that is being dealt with by the economy minister," said Treasury Minister Wiesław Kaczmarek. "When this is complete we can begin the privatization." The Economy Ministry's feasibility study will provide a solution to the conglomerate's debt to state sector firms, including coal suppliers and Polish State Railways (PKP). Part of the debt will be covered by a bond issue backed by the Industrial Development Agency (ARP) estimated at zł. 400 million ($100 million) to take place this month. The creation of PHS brings more than 70% of domestic steel production under the control of a single company, through combining Huta Katowice, Huta Sendzimira, Huta Cedler and Huta Florian, which together produce more than 7.5 million tonnes of steel. But the steel giant is in urgent need of investment and restructuring to allow it to compete against imported steel products, which grew to 46% of the domestic market last year.

"This is our first step," said Krystian Kozakowski, first vice president of PHS. "It is a major step on the road to the restructuring of the Polish steel industry." The Economy Ministry must also decide whether the steelmaker's creditors will be paid off with PHS shares, which would then be sold to a strategic investor, or whether the treasury will sell the shares directly to the investor. The conglomerate's mounting debt makes the second option increasingly likely, Kaczmarek told the WBJ last week. But the conversion process cannot begin until the completion of settlement procedures under way at HTS, which are due for a court hearing at end of June, Kozakowski said. Two strategic investors have expressed an interest in the privatization of PHS: a consortium of European steel giants Thyssen-Krupp Stahl and Salzgitter of Germany, France's Usinor, and Luxembourg's Arbed (the European Consortium), and Indian steel magnate Ispat, part of LNM Holdings, which is registered in the Dutch Antilles. Although the privatization of PHS was not included in the government's zł. 6.8 billion ($1.7 billion) target for privatization revenues in 2002, Kaczmarek denied that the sale of the conglomerate was not a priority for the government this year. "I think that the (cabinet's) decision (to establish PHS) dates back to May, so it would have been difficult to make assumptions about something that didn't exist," Kaczmarek said. "If the analyses show that we have to complete the privatization in a month to avoid bankruptcy, then it will be completed through special government procedures."