Bulgaria: Selling off steel

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Prospective investors took note when it was announced in late July 2010 that Bulgaria's largest steelmaker, Kremikovtzi, will be up for sale in mid-September 2010. The news comes four months after the company went into liquidation and a year after major creditors refused to approve a rescue plan for the ailing company.

 

While the steelmaker is saddled with debts of Lv1.9bn (€971.22m) and the government is claiming Lv700m (€357.82) from the company in state aid, the auction will look like an attractive proposition for many would-be investors. The closed bid auction on September 13th will see the company sold off with a starting price of Lv565.5m (€289.07m) and a 10% participation deposit, a figure which many analysts have suggested is well below market price. Indeed, the market value of its assets is said to total Lv837m (€427.85m), according to Sofia news agency Novinite.

Although no parties have yet bought documents for the tender, there is expected to be significant interest in the metallurgical behemoth. In early August, representatives of Ukrainian millionaire Konstantin Zhevago, who owns Vorskla Steel, a steelmaker with facilities in Denmark, Ukraine and Hungary, inspected the site in what many believe is a precursor to a bid. Furthermore, the Bulgarian press has suggested that a bid from Yordan and Plamen Stoyanov through the company Ecometal Engineering is likely. This comes after Traicho Traikov, the Bulgarian minister of economy, invited ArcelorMittal to participate in the liquidation sale in mid-July.

The future of the company is an emotive issue for Bulgaria and became a significant policy point during the country's general election in the summer of 2009. This is understandable considering that the company contributed almost 2% to Bulgaria's GDP before liquidation. It also accounted for 10% of the country's exports to the EU and 30% of the railway freight in the Balkan state, according to company sources.

Indeed, in the first half of 2009, Bulgaria registered a 57% decrease in its output of crude steel to 334,500 metric tonnes (MT), an 85% drop in its flat steel products to 107,400 MT and 16% drop in long steel output to 360,800 MT, compared to the same period of 2008. Although this was partly a result of the global economic crisis, it was largely blamed on the closure of the Kremikovtzi plant. It is, therefore, considered vital that the company, which employed more than 5000 people, gets back on its feet as quickly as possible.

The Kremikovtzi saga comes at a time when another steel-based company, the Metakom large steel casting foundry based in Pleven, has come under new ownership. The company, which employs more than 200 people and exports 40% of its cast iron and steel products, largely to Western Europe, has a new set of board members after it was announced in early August that the former shareholder Podemstroymash had sold its 93.7% stake in the company to an unnamed entity.

These upheavals are occurring as the first tendrils of recovery seem to be sprouting across Bulgaria's industrial sector. According to data released by the Bulgarian National Statistics Institute, industrial production recorded year-on-year growth of 3.6% in June 2010, the biggest annual jump since the economic crisis hit in 2008. Production also leapt up from the previous month, increasing by 11.6% on May 2010 figures. This growth was largely driven by the extracting industries and the manufacturing base.

It is hoped that this upturn will have a knock-on effect on the country's steel industry. Steel producers in the Balkan state have been having a tough time over the last two years. According to data from the World Steel Association, crude steel production fell from 1.6m MT in 2007 to 1.3m MT in 2008 and then a further 46% to 700,000 MT in 2009.

Since the Central and Eastern European Countries (CEEC) joined the EU, they have struggled to bolster their steel industries, which account for 15% of EU crude steel output. Bulgaria is no different in this regard. Competitive pressure from within the EU and slackening demand as a result of the global economic crisis have both taken their toll.

Yet there are still reasons to be optimistic. Although the German Steel Federation predicts that very little of the expected 1.5m-tonne capacity increase in the CEEC up to 2012 will come from Bulgaria, with Romania responsible for the majority, the country has certain advantages which will give it cause for hope. Primary among these are the labour costs, with Bulgaria ranking second-cheapest globally, alongside China, for labour costs in the steel sector, according to a recent report by Deutsche Bank.

Furthermore, with the totem of Bulgaria's steel industry, Kremikovtzi, set to fall into new hands and reopen, the prospects for the sector are promising. As the company gets its books in order and restarts production, the symbol of Bulgaria's industrial past could well point the way towards a brighter future.

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