The future of Bulgaria’s debt-ridden steelworks Kremikovtzi looks marginally less uncertain after receiver Tsvetan Bankov submitted a rescue plan to the Sofia City Court, which oversees the steel mill’s bankruptcy proceedings.

Filed just as the June 29 deadline was about to expire, the plan envisions raising the mill’s production capacity from the current 25 000 tons a month to 120 000 tons. The key provision is re-fitting the electric arc furnace to boost capacity up to 60 000 tons a month, Bankov told Bulgarian news agency BTA. The slabs produced by the Kremikovtzi arc furnace and imports could keep the hot-rolling mill working to its capacity, he said.

The rescue plan would take 18 months to implement and would keep at least 2500 people employed. Kremikovtzi has fewer than 4900 employees on payroll – official numbers are not available, since some employees have quit the company without waiting for redundancy pay – of whom 1900 are in the process of being laid off.
The rescue plan’s countdown would start whenever the court decision approving it goes into force, Bankov said.

One area where his plan was less specific is the costs of implementation and possible sources of financing.

The figures are only tentative and will have to be revised once the new shareholder structure of the Kremikovtzi is approved, Bankov said.

In May, the steel mill’s creditors agreed that Kremikovtzi’s debt could be converted into equity. The rate at which the debt would be converted will be set by a committee of three assessors. Creditors will have the opportunity to opt out of the equity swap if they are not happy with the valuation. Until the process was complete, it was too early to talk about the financial details, Bankov said, but gave no deadlines for the debt-to-equity conversion.

Kremikovtzi’s situation is further complicated by the uncertainty surrounding the size of its debt, specifically whether the Bulgarian state was entitled to 700 million leva. In 2008, a Sofia court ruled that because Kremikovtzi’s owners did not implement the steelworks’ modernisation plans, the mill had to pay back 431 million leva extended as state aid, as well as a large interest.

In May 2009, the Sofia Administrative Court overturned the lower court’s decision, but the Economy Ministry said it would appeal against the ruling with the Supreme Administrative Court (SAC). Even if the SAC upholds the Sofia Administrative Court’s ruling, the final word could lie with the European Commission, which is reportedly investigating the case for possible illegal state aid.

State-owned companies – including gas distribution firm Bulgargaz, power grid operator NEK and state railways BDZ – are owed a further 300 million leva.

The largest private creditors are bondholders, who are owed about 700 million leva in principal and interest. India’s Global Steel Holdings, the majority shareholder with 71 per cent in Kremikovtzi, issued 325 million euro worth of high-yield bonds in 2006, which were supposed to pay for upgrades at Kremikovtzi. Instead, as it later emerged, the money was used to pay for the acquisition of Kremikovtzi itself and to pay back some of its debts.