Soon after Sofia City Court (SCC) declared Kremikovtzi insolvent on August 6, opened a bankruptcy case and appointed a temporary receiver for the mill, clearing the way for the sale of Bulgaria’s largest steel factory, the mill turned out to be in even more trouble.
The following day, shares in the factory collapsed to 1.701 leva apiece, a drop of 20.88 per cent. However, fast purchases stopped the slide and, in the end, the shares marked a drop of seven per cent.
Also on August 7, labour unions warned about irregularities at Kremikovtzi. They said that there might be malfeasance with documents and material assets at the steel mill. According to the unions, important financial and accounting documents were being plundered, Focus news agency reported.
Two labour unions, Podkrepa and the Confederation of Independent Trade Unions in Bulgaria, said that the local authorities were neglecting the mill and that not enough policemen were guarding it. They claimed that employees had regularly tipped police off about theft at the mill.
The Ministry of Economy and Energy welcomed the decision of SCC to declare Kremikovtzi steel mill insolvent, a ministry media statement said on August 6. The ministry said that the court decision would enable the factory, in the short term, to restore its business in full, for production and jobs to be maintained, and to generate sufficient financial resources to be directed at environmental measures and the mill’s viability, with a view to obtaining a comprehensive permit.
These were the necessary preconditions for successful subsequent resale of the factory to a strategic investor.
The trade unions also welcomed SCC’s decision. “We are happy with the court’s decision to declare Kremikovtzi insolvent,” Lyudmil Pavlov, chairman of the Trade Union of Metallurgists within the Podkrepa, was quoted as saying by Focus. “From now on, the road is open to all who want to work with Kremikovtzi, and not only for [one of the plaintiffs for the factory, Ukrainian tycoon] Konstantyn Zhevago, because other people may come.”
The chairman of the Trade Union of Metallurgists within the Confederation of Independent Trade Unions in Bulgaria, Vassil Yanachkov, who was based at the steel mill, said that the SCC decision to declare the steel mill insolvent was a good one.
But the other trade union, Podkrepa, was of the opinion that sending Kremikovtzi into liquidation would cause “a social explosion”.
In its ruling, CCS dated the insolvency December 25 2005. Podkrepa chairman Konstantin Trenchev said that “the date is important because some deals dating to the beginning of the insolvency proceedings could be contested”.
“Now there are two options, either we will save the plant, or it will be used for scrap,” Reuters quoted Victor Demanuk, head of Vorskla Steel, the Bulgarian unit of Zhevago’s operations, as saying.
As previously reported by The Sofia Echo, the solvency case was filed on July 30 2008. Both candidates to buy Kremikovtzi said that they preferred the mill to go through insolvency before a sale was completed, Reuters reported.
One of the plaintiffs in the case is RUA Invest Inc, registered on the Virgin Islands and, according to Bulgarian news agency BTA, controlled by Zhevago, one of the candidates to buy the steel plant. The world’s leading steel manufacturer ArcelorMittal, controlled by Indian tycoon Lakshmi Mittal, is the other.
Nikolai Stoinov, a lawyer for RUA Invest Trade, said on July 29 that the mill had a total debt of more than two billion leva.
Global Steel Holding Limited, a subsidiary of Indian steel maker ISPA Industries, owns 71 per cent of Kremikovtzi. Pramod Mittal, brother of Lakshmi Mittal, who is chief executive of ArcelorMittal, chairs ISPA Industries.
The state owns 25.3 per cent of the steel mill, with private individuals holding the remainder.
On August 11, the UK steel company Stemcor also filed a claim against the steel plant, Bulgarian-language daily Dnevnik reported, quoting a city financier with investment interest towards the bonds issued by the Bulgarian company. Kremikovtzi corporate secretary Bozhko Bonev said that the company had not yet been notified of the dispute and that Stemcor had most likely filed for arbitration to establish the exact amount of outstanding dues from Kremikovtzi. These stem from 2006/2007 contracts worth $40 to 60 million.
On August 4, Economy and Energy Minister Petar Dimitrov told Bulgarian National Television that the Government, as the mill’s biggest creditor, would have a key say in the future owner of the mill. Previously, the state had vowed that it would keep the mill operational.
