BLACK SEA BLOG: A Romanian privatisation deal worth cheering about

By bne IntelliNews September 26, 2007

Bogdan Preda in Bucharest -

Romania has been in the spotlight too often in the past for asking for too much or too little for the state assets it puts up on sale. Not this time, though, as it sold its second-biggest car plant Automobile Craiova to Ford Motor for a price that's actually just slightly less than what it paid to get it back from a South Korean outfit. And that's because the government seems to have got it right.

For once a government, which is doing little else but stubbornly surviving against all the odds, has done the right thing. It struggled for more than a year to buy back the factory and has now managed to sell it on to the second-biggest US carmaker for only a bit less, thus ensuring the survival of the plant and helping to boost economic growth by turning the country into Southeast Europe's biggest car industry pole. Romania is also home to Automobile Dacia, majority-owned by France's Renault, which leads with about a third of total sales in the country.

Under the terns of the deal, Romania's government led by Prime Minister Calin Popescu-Tariceanu on September 11 agreed to sell 72.4% in Automobile Craiova, formerly owned by South Korea's Daewoo Motor, to Ford for €57m plus another €675m in investments at the plant. Ford will reportedly increase production to 300,000 cars and an equal number of engines a year, from about 25,000 cars and roughly 116,000 motors in 2006. Ford also pledged to more than double Automobile Craiova's workforce from almost 4,000 now to 9,000.

Romania had bought back its 51% stake in Automobile Craiova from Daewoo in August 2006 for $60m, and then combined it with a minority stake owned by a Romanian investment fund to sell more than 72% to Ford. Simple math shows that Romania agreed to sell for a bit less than it paid to buy back its stake, and for a lot less than what Daewoo originally paid for the plant when it bought a 51% stake in 1994 for $156m as part of a joint venture with the state; it claimed it also invested almost $800m through 1997.

Bridge to the EU

Ford's acquisition in the new EU member Romania has a double significance. First, it's the first-ever investment by a US company in the country's automotive industry, which breaks a tradition of French deals in the country. Secondly, it confirms that Romania's attractiveness as a bridge to EU operations for large industrial investors seeking lower costs and skilled labour has now matured.

As John Fleming, head of Ford Europe, was quoted as telling journalists in early September, the Romanian plant is one that, "we have been working to try to capture for about two years." Ford has been looking for an additional plant to ease pressure on its existing European plants, which are finding it hard to meet sales growth.

The sale of the plant to Ford could also help the government in its efforts to halt the brain drain of its skilled labour seeking higher wages in the West since it joined the EU this year. Tariceanu, himself a former stakeholder in the company that imports French-made Citroens, said the sale to Ford would help the economy while retaining and even boosting jobs in the car industry.

Ironically, the plant that Romania agreed to sell to Ford this month was built by former dictator Nicolae Ceausescu's government in the early 1980s to build the small Citroen Axel model, which it called Oltcit, on a license from the French. That was Ceausescu's second deal with France, after having acquired a similar license in the early 1970s from Renault for the Renault 12, which it called Dacia 1300, the most widespread car in the country for at least two decades.

Ford's successful purchase of Automobile Craiova has an interesting twist. Ford's chance to buy the Romanian plant came about because General Motors, the world largest carmaker, didn't include Automobile Craiova among the assets it bought from insolvent Daewoo Motor in April 2002. Since then, the Romanian plant has continued to produce the Daewoo Cielo, known as Nexia in the West, and the larger Daewoo Nubira near the country's southern city of Craiova. It also produced the smaller Daewoo Tico and later Daewoo Matiz, which were Romanians' favourite city cars until imports of similar vehicles from the West slowly started replacing them. Cars produced in Romania under Daewoo's brand were also exported to other European countries.

GM too was among the companies that expressed interest last year in buying the plant it had rejected back in April 2002. However, it later pulled out, as did billionaire Oleg Deripaska's Russian Machines. UkrAvto, Ukraine's biggest car producer and distributor that imports GM parts made at the Romanian plant, had also said it was interested in buying Automobile Craiova.

The government's sale of Automobile Craiova to Ford indicates it is learning from its past mistakes, at least to some extent. That is to say, it no longer resorts to grasping for merely as much money as it can get nor engages in murky deals that have so often put off investors in the past. Instead, it is looking at the overall well-being of its economy - at least this time. Or so it looks that way.

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BLACK SEA BLOG: A Romanian privatisation deal worth cheering about

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