Steel makers consolidate to pay off
By : Bogda Zukowska
Poland's major steel manufacturers plan to consolidate into one large unit this summer in a move that will help to restructure the debt-ridden sector, according to Edward Nowak, the deputy economy Minister.
The Polish Steel Mills (PSM) group would draw together the assets of Huta Katowice, Sendzimira, Cedlera and Florian by July. "The consolidation of Polish steel makers in the form of the Polish Steel Mills company is a key factor for the successful restructuring of the steel sector by 2005," Nowak said. He added, however, that resolving the sector's debt is still an open question and its success depends largely on the attitude of major debtors, which include suppliers of goods and services as well as financial institutions.
The Economy Ministry is considering offering stakes in PSM to debtors such as Polish State Railways (PKP) and several unnamed banks in the form of debt-equity deals. "If a program for the steel sector is to be successful, it would require major debtors to agree on financial solutions such as debt-equity swaps and debt write-offs," Nowak said.
The restructuring program, which is expected to be passed within two months by Parliament, was revealed a day after the Treasury Ministry shortlisted two companies to bid for the four mills: pan-European company Euroconsortium, which comprises Germany's ThyssenKrupp, Usinor of France and Luxemburg's Arbed; and India's Ispat International.
"A potential investor is likely to buy all four mills and we have been urged by the bidders to create a company like PSM," Nowak said. He said the consolidation of the steel industry would not hamper any plans for privatization. "We are committed to privatizing the steel sector," he added. "But at the same time, we aim to create a sound steel group with the ability to become a competitive player even if the sell-off talks collapse."
The PSM group is not the first attempt to consolidate the steel industry's assets. Nowak, who is a well-known supporter of consolidation, said the delay was partly due to the personal ambitions of the heads of major industry players. "Individual ambitions contributed to the present troubles in the industry," he said, referring to previous unsuccessful merger and consolidation attempts by company bosses. "Now it's over. Heads of companies who don't obey the rules will be dismissed."
The PSM group would dominate the steel market with output of up to 7 million tonnes, which is about 65% of total domestic annual steel manufacturing worth zl. 7.5 billion ($1.8 billion). The group's combined assets are estimated at zl. 7 billion ($1.7 billion).
Both bidders interested in the four mills are among the biggest players in the steel industry worldwide. Moreover, Usinor and Arbed strengthened their market position in February when they announced their merger. The companies have a combined market capitalization of more than $3.5 billion.
Since the merger, there has been speculation about the stability of Euroconsortium, as the move is considered to have weakened the position of Germany's ThyssenKrupp, the third member of the group whose market capitalization is $7.9 billion. "ThyssenKrupp is still a big player and it's unlikely the Germans will withdraw from Euroconsortium," Nowak said. If Euroconsortium wins the bid, a likely scenario will be a corporate buyout by one member of the group of the other two, according to Nowak. Ispat, capitalized at $375 million, operates worldwide with subsidiaries in Mexico, Canada, Germany and Ireland.
